How Much of Ellen's Income Must Be Included in Gross Income?

Why must certain amounts be included in Ellen's gross income?

Tax Treatment of Employer-Paid Health Insurance

Amounts Excluded: The amounts ($1,800 for employer-paid health insurance and $1,500 for personal medical expenses) must be included in Ellen's gross income. To determine the amount of the above amounts that must be included in Ellen's gross income, we need to consider the tax rules regarding employer-provided health insurance and the tax treatment of medical expenses. Employer-paid health insurance premiums are generally excluded from an employee's gross income. In this case, Ellen's employer paid $1,800 for her health insurance premiums. Therefore, this amount does not need to be included in Ellen's gross income.

Tax Treatment of Medical Expenses

Amount Deductible: Regarding medical expenses, generally, only the portion of medical expenses that exceeds a certain threshold can be deducted from gross income. For most taxpayers, including Ellen, the threshold is 7.5% of adjusted gross income (AGI). However, it's important to note that the deduction for medical expenses is an itemized deduction, and taxpayers have the choice between claiming the standard deduction or itemizing deductions on their tax return. In this case, Ellen had medical expenses of $3,500, and the insurance company paid $2,000 of those expenses. Therefore, Ellen personally incurred $1,500 ($3,500 - $2,000) in medical expenses. If Ellen itemizes deductions on her tax return and her total medical expenses exceed 7.5% of her AGI, she may be able to include a portion of the $1,500 in her itemized deductions. However, it does not need to be included in her gross income. In summary, none of the above amounts ($1,800 for employer-paid health insurance and $1,500 for personal medical expenses) must be included in Ellen's gross income.

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