J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

3.3 Reimbursements and Other Tax-Free Payments From Employer Health and Accident Plans

Several types of payments from a health or accident plan are tax free to you even if your employer paid the entire cost of your coverage:

1. Reimbursements of your medical expenses; see below.

2. Payments for permanent physical injuries; see below.

3. Distributions from a health savings account (HSA) or Archer MSA if they are used to pay for qualified medical expenses; see below.

4. Payments you receive when you are chronically ill from a qualifying long-term-care insurance contract; but if payments are made on a per diem or other periodic basis, the exclusion may be limited. For 2012, payments of up to $310 per day are tax free regardless of actual expenses. If the payments exceed $310 per day, you are only taxed to the extent that the payments exceed your qualifying long-term-care expenses. See 17.15 for further details.

Payments that are not within the above tax-free categories, such as disability benefits, are not taxable to you if you paid all of the premiums with after-tax contributions. If your contributions were made on a pre-tax basis, benefits received from the plan are taxable. For example, disability benefits are taxable if you paid premiums paid under a cafeteria plan (3.14) with pre-tax contributions that were excluded from your income. If your employer paid all the premiums and you were not taxed on your employer’s payment, any benefits you receive from the plan are fully ...