Ask the taxgirl: Paying someone else’s health care expenses

Taxpayer asks:
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.

Taxgirl says:

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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Comments

  1. (Taxman) Mike

    Dear Kelly,
    I have only one simple question.
    What section of the Internal Revenue Code establishes “Liability” for “Income Taxes” as do sections 5005, 5703, and 4401 for their respective taxes?????

    26 USC 5005 Persons liable for tax.
    (a) General.
    The distiller or importer of distilled spirits shall be liable for the taxes imposed by section 5001(a)(1)

    26 USC 5703 Liability for tax and method of payment.
    (a) Liability for tax.
    (1) Original liability.
    The manufacturer or importer of tobacco products and cigarette papers and tubes shall be liable for the taxes imposed by section 5701.

    26 USC 4401 Imposition of tax.
    (c) Persons liable for tax
    Each person who is engaging in the business of accepting wagers shall be liable for and pay the tax under this subchapter on all wagers placed with him.

    So again I ask this one simple question Kelly.
    What section of the Internal Revenue Code establishes “Liability” for “Income Taxes”?

    Congressman Dan Burton—
    “You are correct in your assertion that the word “liability” or terminology “liability for income taxes” is not contained in any Section of the Internal Revenue Code”

    Congressman John E. Ensign–
    “I cannot point to a specific place in the law where it says you must pay income taxes.”

    Aaron Russo: “Is there a law that requires people to file a 1040?”
    Congressman Ron Paul: “Not explicitly, but it’s certainly implied.”
    Aaron Russo: “Well implied by force; but is there a law?”
    Congressman Ron Paul: “I cannot cite a law, no, I cannot….you know if
    they think it’s a law and
    they have all the guns; you know it’s an authoritarian approach.”
    {Taken from the movie “America:
    Freedom to Fascism”}

    T. Coleman Andrews
    Commissioner of IRS
    “Maybe we ought to see that every person who gets a tax return receives a copy of the Communist Manifesto with it so he can see what’s happening to him.”
    U.S. News & World Report May 25, 1956

    Jack Cole Co. v. MacFarland
    337 S.W. 2d. 453, 455-456 (Tenn. 1960)
    “Since the Right to receive income or earnings is a Right belonging to every person, this right cannot be taxed as a privilege.”

    President Ronald Reagan, May 1983, Williamsburg, VA
    “Our federal tax system is, in short, utterly impossible, utterly unjust and completely
    counterproductive [it] reeks with injustice and is fundamentally un-American… it has earned a rebellion and it’s time we rebelled.”

    Sir Winston Churchill
    “Most people, sometime in their lives, stumble across the truth. Most jump up, brush themselves off, and hurry on about their business as if nothing had happened.”

    Mike
    Leesburg Virginia
    http://www.citizensforaconstitutionalrepublic.com/I_want_my_Country_back!.html

  2. Pancho

    Dear Mike:

    Section 1- “There is hereby imposed on the taxable income of [every person] a tax determined in accordance with the following table…”.

    Just pay your share, man.

    Pancho
    Houston, TX

  3. (Taxman) Mike

    The imposition of a tax does NOT establish “Liability” for said tax.

    Also the US Supreme Court has defined the word “Income” as being “Gain or Profit from corporate activity” so what you have been mislead to believe is income actually is NOT income at all!!!

    You see, words in law have a completely different meaning than words in the common use of the English language.

    I do indeed pay “my share” man. I pay ALL taxes the “Law” requires me to, and NO more.

    Mark Twain
    “In the Beginning of a change, the patriot is a scarce man, and brave and hated and scorned. When his cause succeeds the timid join him, for then it costs nothing to be a patriot.”

    Edward Abbey
    “A patriot must always be ready to defend his country against his government.”

    J. Edgar Hoover
    “No matter how paranoid or conspiracy-minded you are, what the government is actually doing is worse than you imagine.”

  4. Kelly

    Milt,

    Thanks for bringing this back around…

    I’m not sure that the sisters – if they’re adults and not being supported by the mother at least half time – would qualify as dependents. But you’re right that if they are dependents, the expenses would be deductible for income tax purposes.

  5. Malcolm

    Gifting is the right answer, but you can choose who you gift to. Mom could ask her church to act as a charitable conduit in the transaction. Mom gifts to the church (a Schedule A deduction for her), and the church pays the health care bill for daughter. Just make sure the church agrees to it in advance. You might find another charitable NFP that would do the same transaction, and might be safer, since Mom could place a donor restriction on the figt. Personally, I’m not very trusting. I would swap checks at the same time, just to make sure it happened the way I planned. But that’s just me.

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  8. Jay Jones

    Am I liable for the medical expenses of my 25 year old son just because I take him as a dependent on my federal income tax?

  9. Author
    Kelly

    Liable is a bit much said. If you’re claiming your adult child, you’re saying to the IRS that you have provided at least 1/2 of the child’s support for the year. Ostensibly, that would include medical expenses.

    From a legal perspective, that doesn’t mean you could be forced by a 3rd party to pay for services that you otherwise haven’t agreed to be responsible for…

  10. Roon

    If Mom is paying health-care expenses for non-dependent kids and it is considered a gift she’s giving them, can THEY deduct the expense on THEIR taxes? Is there a scenario under which that make sense? Would there be any advantage to Mom giving them the cash and THEY pay the provider?

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