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A family member has had a surgery at the end of last year. So far the insurance claim has been rejected because the doctor did not report it properly. I have no idea when that will be resolved and what portion the insurance will ultimately reimburse, if any.

Applying for a 6 months extension would solve the problem, but I can't do that for other reasons I don't want to expand on here.

I guess my only option is to file a return with some amount now and then file an amended tax return once I know the exact amount. But what should I claim now?

If I claim the full amount now, based on the fact that the insurance did not reimburse anything, can I be penalized down the line if insurance reimburses it? How quickly would I have to file the amended tax return to show good faith?

Or should I wait to know the exact number before claiming anything?

I asked the IRS, but they said this was tax planning and they couldn't answer these types of questions.

Note: the question is not about the expense admissibility, but how to deal with uncertainty of insurance coverage at the time of producing the return. I've already paid for the expense in 2022 out of pocket.

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    Medical deductions are for payments you've actually made, not just amounts you've been billed. Are you making a payment before finding out what insurance will pay?
    – chepner
    Mar 12 at 19:20
  • @chepner, I've already made payment in 2022 out-of-pocket in full, yes.
    – taxpayer2022
    Mar 12 at 19:26
  • I wonder if the IRS misunderstood your question. They may have thought you were asking if you should pay now and get reimbursed later, rather than wait to pay until insurance has made their decision. I would think that the status of a payment you have already made is clearly that of a deductible expense, and that any hypothetical insurance reimbursement received later would simply be taxable income at that time (but I am not a tax lawyer or CPA).
    – chepner
    Mar 12 at 19:34
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    (I think as far as the IRS is concerned, the two situations would be equivalent as long as you got the reimbursement in the same tax year you made the payment; only the net payment is a deductible expense.)
    – chepner
    Mar 12 at 19:35
  • @chepner, thanks for your response. The reimbursement would not be done in the same tax year. I did some more research based on what you mentioned and that seems to be the way to go, claim the full deduction now, and report as taxable income next year whatever reimbursement comes. Ref: hrblock.com/tax-center/income/other-income/….
    – taxpayer2022
    Mar 12 at 20:13

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Your link in the comments says:

However, insurance claim taxable income might be an issue and you must include the reimbursement as income if either of these is true:

  • You reported the resulting medical expenses as itemized deductions in a prior year.
  • The funds were designated for something else — Like reimbursement for lost income.

With that guidance, you'd indeed claim the deduction now and add the insurance proceeds to income when you get them.

However....

In your specific situation, I suspect it would not be you getting the insurance proceeds, but the doctor. As such you'll get the reimbursement for the money paid from the doctor since they'd be paid by the insurance.

In this case, the economic reality is that you've never paid the expense (even though you did for a while), and the right thing to do would be to amend the return and remove the deduction.

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  • makes sense, thanks for your input!
    – taxpayer2022
    Mar 12 at 21:21
  • Seems like whether I get reimbursed directly from insurance or not I would need to amend the return. From pub 502: "You can't include medical expenses that were paid by insurance companies or other sources. This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services."
    – taxpayer2022
    Mar 12 at 21:29
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    @taxpayer2022 right, and this is more relevant to your situation. The H&R Block page talks about things like life insurance or proceeds from liability insurance for your injuries in a car accident, etc.
    – littleadv
    Mar 12 at 21:39
  • Couldn’t the OP simply add the reimbursement as income in the year he receives it, whether it comes directly from the insurance company or it goes through the doctor’s office? Why would he need to amend his return in one case but not the other?
    – Ben Miller
    Mar 13 at 17:46
  • @BenMiller-RememberMonica economical substance... Technically I guess the OP could do that and it would probably not cause any issues, but in audit the IRS may claim that since the OP was reimbursed the correct treatment is to amend the return. Depending on the differences in amounts owed because of that there may be unintended side effects like penalties and interest which may make it worth the while for the government to insist.
    – littleadv
    Mar 13 at 17:51
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You're always better off setting the stage so the IRS owes you money when tax is adjusted later. That way you don't face interest or penalties.

For that matter, FYI, there's no penalty for filing late if the IRS owes you money.

So you might just make now whatever additional payment will assure you are ultimately owed a refund, and then simply defer filing taxes until your data is in. You will need some sort of form to attach the payment to; I normally use a Form 4868 for that purpose but a 2022 Form 1040-ES would also suffice if you have some dislike of the 4868.

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  • "Applying for a 6 months extension would solve the problem, but I can't do that for other reasons I don't want to expand on here." Otherwise, your advice is good.
    – JTP - Apologise to Monica ♦
    Mar 14 at 14:32
  • @JTP Yeah, I didn't mean the advice as "file a 6-month extension", I meant it as "IRS doesn't like it when a bare check shows up with no form attached to it, so use any suitable payment form; the 4868 is fit for purpose" - and will also assure the payment is applied to 2022 taxes. Using a 2022 Form 1040-ES risks IRS perceiving it as a 2023 payment on the wrong form (and then credited to 2023 instead of 2022, making the latter late).
    – Harper - Reinstate Monica
    Mar 14 at 22:05
  • I think I misread your answer. Apologies for that.
    – JTP - Apologise to Monica ♦
    Mar 15 at 1:54
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    @JTP well I just changed it :)
    – Harper - Reinstate Monica
    Mar 15 at 2:35

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