Examples 6.2

Laura enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. She is married and earns $350,000 per year as a salary. Her spouse earns $150,000 per year as a salary. Together, they earn a total of $500,000 per year in earned income. Laura brought home an additional $1,500 over the course of the year after enrolling in the Indemnity Health plan. Laura is wondering how much their tax liability will increase this year because she received $6,000 in indemnity benefit payments.

In order to determine how the indemnity benefit payments will affect Laura’s tax return, she must calculate the exact amount of indemnity benefit payments that must be reported on her tax return. Laura must add up 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.

Laura looks at her records and sees that they did not have any out-of-pocket qualified medical expenses. As such, they report the entire amount of indemnity benefit payments for the year, $6,000, on Schedule 1, line 8 of their personal tax return. Laura also notices that her W-2 reflects a lower amount for gross because the Indemnity Health plan’s premium payments ($600 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $350,000, Laura will list $342,800 as her wages on their personal tax return. Claiming $6,000 in indemnity benefit payments brings their adjusted gross income (AGI) on their joint tax return to $498,800. They do not itemize their deductions and, therefore, deduct the $25,100 standard deduction from their AGI. This brings their taxable income for the year to $473,700. The Indemnity Health plan saved them approximately $400 in federal tax. In addition, Laura remembers she brought home an additional $1,500 throughout the year.

Elliott enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. He is married and earns $350,000 per year as a salary. His spouse earns $150,000 per year as a salary. Together, they earn a total of $500,000 per year in earned income. Elliott brought home an additional $1,500 over the course of the year after enrolling in the Indemnity Health plan. Elliott is wondering how much their tax liability will increase this year because he received $6,000 in indemnity benefit payments.

In order to determine how the indemnity benefit payments will affect Elliott’s tax return, he must calculate the exact amount of indemnity benefit payments that must be reported on his tax return. Elliott must add up 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.

Elliott looks at his records and sees that they had $3,000 in out-of-pocket qualified medical expenses. This consisted of $500 in co-payments to physicians, $400 for prescriptions, $1,700 to the hospital for certain procedures, and $400 in ambulance services. Elliott will deduct the $3,000 in qualified out-of-pocket medical expenses from the $6,000 in indemnity benefit payments he received. As such, they will report $3,000 of indemnity benefit payments for the year on Schedule 1, line 8 of their personal tax return. Elliott also notices that his W-2 reflects a lower amount for gross because the Indemnity Health plan’s premium payments ($600 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $350,000, Elliott will list $342,800 as his wages on their personal tax return. Claiming $3,000 in indemnity benefit payments brings their adjusted gross income (AGI) on their joint tax return to $495,800. They do not itemize their deductions utilize the standard deduction from their AGI. The Indemnity Health plan saved them about $1,500 in federal tax. In addition, Elliott remembers he brought home an additional $1,500 throughout the year.

Emily enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. She is married and earns $350,000 per year as a salary. Her spouse earns $150,000 per year as a salary. Together, they earn a total of $500,000 per year in earned income. Emily brought home an additional $1,500 over the course of the year after enrolling in the Indemnity Health plan. Emily is wondering how much their tax liability will increase this year because she received $6,000 in indemnity benefit payments.

In order to determine how the indemnity benefit payments will affect Emily’s tax return, she must calculate the exact amount of indemnity benefit payments that must be reported on her tax return. Emily must add up 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.

Emily looks at her records and sees that they had $6,500 in out-of-pocket qualified medical expenses. This consisted of $700 in prescriptions, $1,400 in co-payments to physicians, $4,000 to the hospital for certain procedures, and $400 for ambulance services. Emily will deduct the $6,500 in qualified out-of-pocket medical expenses from the $6,000 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. Emily also notices that her W-2 reflects a lower amount for gross because the Indemnity Health plan’s premium payments ($600 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $350,000, Emily will list $342,800 as her wages on their personal tax return. Their adjusted gross income (AGI) on their joint tax return is $492,800. They do not itemize their deductions but deduct standard deduction from their AGI. The Indemnity Health plan saved them over $2,500 in federal tax. In addition, Emily remembers she brought home an additional $1,500 throughout the year.