Question

A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay. However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds. An officer incurred $1,500 in medical expenses and was reimbursed for that amount. An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

a. Both employees must include all benefits received in gross income.
b. The officer must include $500 in gross income.
c. The officer must include $1,500 in gross income.
d. The hourly employee must include $1,000 in gross income.
e. None of these.

Answer 1

Neither the officer nor the hourly employee must include their medical reimbursements in their gross income. The officer was fully reimbursed for their expenses, while the hourly worker was reimbursed only after covering a deductible, which would not lead to a taxable benefit.

Step-by-step explanation:

The question asks which employee must include what amount in gross income when it comes to medical reimbursement from their employer. We are dealing with two separate cases here: one involving an officer who gets reimbursed for all medical expenses and one involving an hourly worker who is covered only after paying an initial deductible of $1,000.In the case of the officer, they incurred $1,500 in medical expenses and received a reimbursement for the entire amount. Since this is a reimbursement for expenses incurred wholly, the officer does not need to include any part of this in gross income. On the contrary, the hourly employee had the same medical expenses of $1,500 but had to pay $1,000 before the insurance kicked in, thus only getting reimbursed for $500. The hourly employee, therefore, does not include any amount in gross income because the $500 reimbursement does not exceed the $1,000 they already paid out-of-pocket. Therefore, the correct answer is e - None of these.