Tim enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. He is not married and earns $20,000 per year as a salary. Tim brought home an additional $200 over the course of the year after enrolling in the Indemnity Health plan. Tim is wondering how much his 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 Tim’s tax return, he must calculate the exact amount of indemnity benefit payments that must be reported on his tax return. Tim must add up all his out-of-pocket qualified medical expenses paid throughout the year. Once he knows the amount of his out-of-pocket qualified medical expenses he will deduct this amount from the total indemnity benefit payments he received.

Tim looks at his records and sees that he did not have any out-of-pocket qualified medical expenses for the year. As such, he will report the entire amount of indemnity benefit payments for the year, $6,000, on Schedule 1, line 8 of his personal tax return. Tim also notices that his W-2 reflects a lower amount for gross wages because the Indemnity Health plan’s premium payments ($600 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $20,000, Tim will list $12,800 as wages on his personal tax return. Claiming $6,000 in indemnity benefit payments brings Tim’s adjusted gross income (AGI) to $18,800. Tim does not itemize his deductions and, therefore, deducts the $12,550 standard deduction from his AGI. This brings Tim’s taxable income for the year to $6,250. Because he is in the 10% tax bracket, his tax liability is $625. If Tim did not enroll and participate in the Indemnity Health plan for the entire year, his tax liability would have been $745. The Indemnity Health plan saved Tim $120 in federal tax. In addition, Tim remembers he brought home an additional $200 throughout the year.

Carla enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. She is not married and earns $20,000 per year as a salary. Carla brought home an additional $200 over the course of the year after enrolling in the Indemnity Health plan. Carla is wondering how much her tax liability will increase this year because she received $6,000 in indemnity benefit payments.

Carla looks at her records and sees that she had $3,000 in out-of-pocket qualified medical expenses for the year. This consisted of $500 in co-payments to physicians, $400 for glasses, $1,700 to the hospital for certain procedures, and $400 in dental expenses. Carla will deduct the $3,000 in qualified out-of-pocket medical expenses from the $6,000 in indemnity benefit payments she receives. As such, she will report $3,000 of indemnity benefit payments for the year on Schedule 1, line 8 of her personal tax return. Carla 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 $20,000, Carla will list $12,800 as wages on her personal tax return. Claiming $3,000 in indemnity benefit payments brings Carla’s adjusted gross income (AGI) to $15,800. Carla does not itemize her deductions and, therefore, deducts the $12,550 standard deduction from her AGI. This brings, Carla’s taxable income for the year to $3,250. Because she is in the 10% tax bracket, her tax liability is $325. If Carla did not enroll and participate in the Indemnity Health plan for the entire year, her tax liability would have been $745. The Indemnity Health plan saved Carla $420 in federal tax. In addition, Carla remembers she brought home an additional $200 throughout the year.

Matt enrolled in the Indemnity Health plan in January and has participated and remained enrolled for the entire year. He is not married and earns $20,000 per year as a salary. Matt brought home an additional $200 over the course of the year after enrolling in the Indemnity Health plan. Matt is wondering how much his 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 Matt’s tax return, he must calculate the exact amount of indemnity benefit payments that must be reported on his tax return. Matt must add up all his out-of-pocket qualified medical expenses paid throughout the year. Once he knows the amount of his out-of-pocket qualified medical expenses he will deduct this amount from the total indemnity benefit payments he received.

Matt looks at his records and sees that he had $6,500 in out-of-pocket qualified medical expenses for the year. This consisted of $700 in prescriptions, $1,400 in co-payments to physicians, $4,000 to the hospital for certain procedures, and $400 for glasses. Matt will deduct the $6,500 in qualified out-of-pocket medical expenses from the $6,000 in indemnity benefit payments he receives. Because his out-of-pocket qualified medical expenses were more than the indemnity benefit payments, he will not report any amount on Schedule 1, line 8 of his personal tax return. Matt also notices that his W-2 reflects a lower amount for gross wages because the Indemnity Health plan’s premium payments ($600 per month) are paid through a Section 125 cafeteria plan salary reduction. Therefore, instead of $20,000, Matt will list $12,800 as wages on his personal tax return. Matt’s adjusted gross income (AGI) is $12,800. Matt does not itemize his deductions and, therefore, deducts the $12,550 standard deduction from his AGI. This brings Matt’s taxable income for the year to $250. Because he is in the 10% tax bracket, his tax liability is $25. If Matt did not enroll and participate in the Indemnity Health plan for the entire year, his tax liability would have been $745. The Indemnity Health plan saved Matt $720 in federal tax. In addition, Matt remembers he brought home an additional $200 throughout the year.