Hi TaxGirl. I’ve searched all over the Internet and the IRS.gov website and I can’t find an answer to my question, so I’m hoping you can answer it:
My sisters don’t currently have healthcare insurance, so my mom is helping them with some of their healthcare bills and expenses. My understanding is that this is not subject to taxation or reporting as long as the payments are being made directly to the healthcare providers. My question is: can my mom instead make premium payments for healthcare insurance for them or does this somehow not qualify in the same way as direct healthcare payments? I know that in personal income tax deductions, premiums can be deducted along with medical expenses, but for gifts, if payments must be paid directly to healthcare providers, than I’m not sure if a healthcare insurance company is consider a healthcare provider or not.
Thanks very much.
I think you might be confusing two kinds of tax.
What your mother is doing for your sisters, assuming that they are not your mother’s legal dependents, is making gifts to them by paying their expenses. Currently, under the gift tax laws, your mother may gift up to $12,000 per person per year. If your mother handed your sisters a check and then they paid health care expenses personally, that amount would be included in that “annual exclusion” amount of $12,000; if your mother exceeds that amount in any year, she would file a gift tax return. However, to the extent that she pays the money directly to the provider, that amount is excluded from the $12,000 and is not includable or reportable.
This amount – since it is a gift – is not reportable by or taxable to your sisters.
But with respect to income tax, your mother likely cannot deduct any of the health care expenses paid on behalf of your sisters. This is because a taxpayer may only claim income tax deductions for expenses paid for the taxpayer, the taxpayer’s spouse and your dependents. If your sisters qualify as your mother’s dependents (I’m guessing not so from your question), then yes, the health insurance premiums would be treated exactly as any other health expense and would be deductible if paid to the health insurance company (or agent).
I hope that helps.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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