Examples 3.2

Angela enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. She is married and earns $75,000 per year as a salary. Her spouse earns $25,000 per year as a salary. Together, they earn a total of $100,000 per year in earned income. Angela brought home an additional $1,300 over the course of the year after enrolling in the Indemnity Health plan. Angela is wondering how much their tax liability will increase this year because she received $9,000 in indemnity benefit payments.

In order to determine how the indemnity benefit payments will affect Angela’s tax return, she must calculate the exact amount of indemnity benefit payments that must be reported on her tax return. Angela must add up all her, her spouse’s, and any dependents’ out-of-pocket qualified medical expenses. Once she knows the total amount of out-of-pocket qualified medical expenses they spent she will deduct this amount from the total indemnity benefit payments received.

Angela looks at her records and sees that they did not have any out-of-pocket qualified medical expenses for the year. As such, they report the entire amount of indemnity benefit payments for the year, $9,000, on Schedule 1, line 8 of their personal tax return. Angela also notices that her W-2 reflects a lower amount for gross wages because the Indemnity Health plan’s premium payments ($900 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $75,000, Angela will list $64,200 as her wages on their personal tax return. Claiming $9,000 in indemnity benefit payments brings their adjusted gross income (AGI) on their joint tax return to $98,200. They do not itemize their deductions and apply the standard deduction from their AGI. If Angela did not enroll and participate in the Indemnity Health plan for the entire year, their tax liability would have been greater. The Indemnity Health plan saved them approximately $350 in federal tax. In addition, Angela remembers she brought home an additional $1,300 throughout the year.

Edward enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. He is married and earns $75,000 per year as a salary. His spouse earns $25,000 per year as a salary. Together, they earn a total of $100,000 per year in earned income. Edward brought home an additional $1,300 over the course of the year after enrolling in the Indemnity Health plan. Edward is wondering how much their tax liability will increase this year because he received $9,000 in indemnity benefit payments.

In order to determine how the indemnity benefit payments will affect Edward’s tax return, he must calculate the exact amount of indemnity benefit payments that must be reported on his tax return. Edward must add up all his, his spouse’s, and any dependents’ out-of-pocket qualified medical expenses. Once he knows the total amount of out-of-pocket qualified medical expenses they spent he will deduct this amount from the total indemnity benefit payments received.

Edward looks at his records and sees that they had $4,500 in out-of-pocket qualified medical expenses. This consisted of $1,100 in co-payments to physicians, $400 for prescriptions, $2,100 to the hospital for certain procedures, and $900 in ambulance services. Edward will deduct the $4,500 in qualified out-of-pocket medical expenses from the $9,000 in indemnity benefit payments he received. As such, they will report $4,500 of indemnity benefit payments for the year on Schedule 1, line 8 of their personal tax return. Edward also notices that his W-2 reflects a lower amount for gross wages because the Indemnity Health plan’s premium payments ($900 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $75,000, Edward will list $64,200 as his wages on their personal tax return. Claiming $4,500 in indemnity benefit payments brings their adjusted gross income (AGI) on their joint tax return to $93,700. They do not itemize their deductions but apply the standard deduction from their AGI. This brings their taxable income for the year to approximately $68,000. If Edward did not enroll and participate in the Indemnity Health plan for the entire year, their federal tax liability would have been greater by about $1,200. In addition, Edward remembers he brought home an additional $1,300 throughout the year.

Jenna enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. She is married and earns $75,000 per year as a salary. Her spouse earns $25,000 per year as a salary. Together, they earn a total of $100,000 per year in earned income. Jenna brought home an additional $1,300 over the course of the year after enrolling in the Indemnity Health plan. Jenna is wondering how much their tax liability will increase this year because she received $9,000 in indemnity benefit payments.

In order to determine how the indemnity benefit payments will affect Jenna’s tax return, she must calculate the exact amount of indemnity benefit payments that must be reported on her tax return. Jenna must add up all her, her spouse’s, and any dependents’ out-of-pocket qualified medical expenses. Once she knows the total amount of out-of-pocket qualified medical expenses they spent she will deduct this amount from the total indemnity benefit payments received. 

Jenna looks at her records and sees that they had $10,000 in out-of-pocket qualified medical expenses for the year. This consisted of $1,000 in prescriptions, $2,500 in co-payments to physicians, $6,000 to the hospital for certain procedures, and $500 for glasses. Jenna will deduct the $10,000 in qualified out-of-pocket medical expenses from the $9,000 in indemnity benefit payments she received. Because their out-of-pocket qualified medical expenses were more than the indemnity benefit payments, they will not report any amount on Schedule 1, line 8 of their personal tax return. Jenna also notices that her W-2 reflects a lower amount for gross wages because the Indemnity Health plan’s premium payments ($900 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $75,000, Jenna will list $64,200 as her wages on their personal tax return. Their adjusted gross income (AGI) on their joint tax return is $89,200. They utilize the standard deduction from their AGI. This brings their taxable income for the year to approximately $65,000. The Indemnity Health plan saved them abot $2,000 in federal tax. In addition, Jenna remembers she brought home an additional $1,300 throughout the year.