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Insurance Reimbursement — What if Your Insurance Reimbursement Is More Than Your Medical Expenses?: Medical Expense Deductions (2025 IRS Guide)

This guide covers “Insurance Reimbursement — What if Your Insurance Reimbursement Is More Than Your Medical Expenses?” within medical expense deductions. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 502 (2025), Medical and Dental Expenses, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. This includes payments from Medicare.

Even if a policy provides reimbursement only for certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it doesn’t reimburse.

Insurance Reimbursement — What if Your Insurance Reimbursement Is More Than Your Medical Expenses?

If you are reimbursed more than your medical expenses, you may have to include the excess in income. You may want to use Figure 1 to help you decide if any of your reimbursement is taxable.

Premiums paid by you.

If you pay either the entire premium for your medical insurance or all the costs of a plan similar to medical insurance and your insurance payments or other reimbursements are more than your total medical expenses for the year, you have excess reimbursement. Generally, you don’t include the excess reimbursement in your gross income. However, gross income does include total payments in excess of $420 a day ($153,300 for 2025) for qualified long-term care services.

Premiums paid by you and your employer.

If both you and your employer contribute to your medical insurance plan and your employer’s contributions aren’t included in your gross income, you must include in your gross income the part of your excess reimbursement that is from your employer’s contribution.

If you aren’t covered by more than one policy, you can figure the amount of the excess reimbursement you must include in gross income using Worksheet B. If you are covered under more than one policy, see More than one policy, later.

Premiums paid by your employer.

If your employer or your former employer pays the total cost of your medical insurance plan and your employer’s contributions aren’t included in your income, you must report all of your excess reimbursement as other income.

More than one policy.

If you are covered under more than one policy, the cost of at least one of which is paid by both you and your employer, you must first divide the medical expenses among the policies to figure the excess reimbursement from each policy. Then divide the policy costs to figure the part of any excess reimbursement that is from your employer’s contribution. Any excess reimbursement that is due to your employer’s contributions is includible in your income.

You can figure the part of the excess reimbursement that is from your employer’s contribution by using Worksheet C. Use Worksheet C only if both you and your employer paid part of the cost of at least one policy. If you had more than one policy but you didn’t share in the cost of at least one policy, don’t use Worksheet C.

Figure 1. Is Your Excess Medical Reimbursement Taxable?

Figure 1. Is Your Excess Medical Reimbursement Taxable?

Summary: This flowchart is used to determine if any reimbursements you receive for your medical expenses is taxable.

Start

Decision (1)

Was any part of your premiums paid by your employer?

  • IF Yes Continue To Decision (2)
  • IF No Continue To Process (a)

Decision (2)

Were your employer's contributions to your premiums included in your income?

  • IF Yes Continue To Process (a)
  • IF No Continue To Decision (3)

Process (a)

NONE of the excess reimbursement is taxable.

  • Continue To End

Decision (3)

Did you pay any part of the premiums?

  • IF Yes Continue To Process (c)
  • IF No Continue To Process (b)

Process (b)

ALL of the excess reimbursement is taxable.

  • Continue To End

Process (c)

PART of the excess reimbursement is taxable.

Footnote: See Premiums paid by you and your employer.

  • Continue To End

End

Worksheet B. Excess Reimbursement Includible in Income When You Have Only One Policy

Instructions: Use this worksheet to figure the amount of excess reimbursement you must include in income when both you and your employer contributed to your medical insurance and your employer’s contributions aren’t included in your gross income.
1. Enter the amount contributed to your medical insurance for the year by your employer 1. _____
2. Enter the total annual cost of the policy 2. _____
3. Divide line 1 by line 2 3. _____
4. Enter the amount of excess reimbursement 4. _____
5. Multiply line 3 by line 4. This is the amount of the excess reimburse-
ment you must include as other income on Form 1040 or 1040-SR		 5. _____

Worksheet C. Excess Reimbursement Includible in Income When You Have More Than One Policy

Instructions: Use this worksheet to figure the amount of excess reimbursement you must include as income on your tax return when (a) you are reimbursed under two or more health insurance policies, (b) at least one of which is paid for by both you and your employer, and (c) your employer’s contributions aren’t included in your gross income. If you and your employer didn’t share in the cost of at least one policy, don’t use this worksheet.
1. Enter the reimbursement from your employer’s policy 1. _____
2. Enter the reimbursement from your own policy 2. _____
3. Add lines 1 and 2 3. _____
4. Divide line 1 by line 3 4. _____
5. Enter the total medical expenses you paid during the year. If this amount is at least as much as the amount on line 3, stop here because there is no excess reimbursement 5. _____
6. Multiply line 4 by line 5 6. _____
7. Subtract line 6 from line 1 7. _____
8. Enter employer’s contribution to the annual cost of the employer’s policy 8. _____
9. Enter total annual cost of the employer’s policy 9. _____
10. Divide line 8 by line 9. This is the percentage of your total excess reimbursement you must report as other income 10. _____
11. Multiply line 7 by line 10. This is the amount of your total excess
reimbursement you must report as other income on Form 1040 or 1040-SR		 11. _____

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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