Question

Courtney purchased disability and accident insurance in 2019. In April of 2020, she broke her wrist...

Courtney purchased disability and accident insurance in 2019. In April of 2020, she broke her wrist in a mountain biking accident and could not work for two weeks. Courtney’s doctor bills totaled $2,000, of which $1,600 was reimbursed by her health insurance purchased by her employer.

In addition, Courtney received $600 for lost wages due to the accident from a disability insurance policy in which she pays the premium. She also received $400 for lost wages due to the accident from a disability insurance policy in which her employer pays the premium.

How much of the amounts above are Courtney allowed to exclude from gross income in 2020?

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Answer #1

The IRS excludes from gross income аll funds received аs compensаtory dаmаges when а person hаs suffered а personаl injury or sickness. The IRS hаs hаd а long-stаnding policy thаt such dаmаges should not be tаxed. Compensаtory dаmаges include аll dаmаges for medicаl expenses, pаin аnd suffering, аnd lost wаges.

Thus Courtney can exclude the lost wages she recieved from the disability insurance policy for which she pays the premium as well as the one for which her employer pays the premium.

Which $600 + $400 = $1,000

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