Your friend Scotty informs you that he received a "tax-free" reimbursement in 2010 of some medical expenses he paid in 2009.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
A)Scotty itemized deductions in 2009.
B)Scotty did not itemize deductions in 2009.
C)Scotty itemized deductions in 2010.
D)Scotty did not itemize deductions in 2010.
E)Scotty itemized deductions in 2010 but not in 2009.

Question

Quizplus · Accepted Answer

If Scotty did not itemize deductions in 2009, then he did not receive a tax benefit for the medical expenses that he paid that year. Therefore, the reimbursement is not taxable income in 2010. If Scotty had itemized deductions in 2009, he would have received a tax benefit for the medical expenses and the reimbursement would be taxable income in 2010. Scotty's itemized deductions in 2010 are not relevant to the taxability of the reimbursement.

Your Friend Scotty Informs You That He Received a "Tax-Free