Last year the U.S. Tax Court determined a taxpayer can deduct the amount of medical expenses paid on their behalf by someone else when those expenses are paid directly to the medical provider. For some of you this may be worth filing an amended tax return; keep it in mind for next year as well.
'The facts of the case demonstrated that the mother intended the payments, which were paid directly to the medical-service providers and local government, to be gifts. Therefore, the Tax Court characterized the transactions as gifts from the mother to the daughter, followed by payment of the expenses by the daughter using those gifted funds. The daughter was allowed to count nearly $25,000 of medical expenses that were actually paid by the mother, plus some expenses the daughter paid with her own funds, in calculating her medical-expense deduction.
Thanks to the tax-law exemption for gifts that are made in the form of direct payments to medical-service providers, the mother's payment of the medical expenses had no federal gift tax consequences for her.
Important Point: When you directly pay medical expenses for a person who is your dependent (meaning you pay over 50% of that person's total support), you can add the expenses you pay for the dependent to your own expenses and claim a deduction for the total to the extent it exceeds 7.5% of your adjusted gross income. In the Tax Court case, the daughter was evidently not the mother's dependent, so the deduction for the daughter's expenses belonged to the daughter rather than the mother. '