Cancer insurance pay-out

[Janitor Bob]

My client paid over several years for a cancer insurance policy.....in 2008 she was diagnosed with a form of cancer and the policy paid her $6,500.00. She received a 1099-misc from the insurance company listing the $6,500.00 in box 3 (Other income)...all other boxes are blank.....Is this taxable?

Could she then deduct the premiums paid as a health expense (subject to 7% AGI limitation)?

[TaxmannEA]

It all depends on how the cancer policy is set up. If the pay-out is for medical expenses, then it's not includable in income. If the client is receiving $** per day in the hospital or off of work or the like, then it may be includable.

The same applies to the deduction on Sch A . If the policy pays medical expenses, then it's deductable. If not, then you can't use it.

[Janitor Bob]

It all depends on how the cancer policy is set up. If the pay-out is for medical expenses, then it's not includable in income. If the client is receiving $** per day in the hospital or off of work or the like, then it may be includable.

The same applies to the deduction on Sch A . If the policy pays medical expenses, then it's deductable. If not, then you can't use it.

The pay-out was a reimbursement of cancer-related medical expenses that client submitted to the insurance company. If such pay-out is not taxable, how do I offset the box 3 amount on the 1099-Misc.....I will have to include that for IRS matching.

Do I offset the box 3 amount with the medical expenses? If so, are the medical expenses deducted completely to offset, or are they still a Sch A deduction subject to 7% AGI?