Health Care

Health Care

How do health care reform and taxes connect? The Affordable Care Act is single largest change to the tax code in two decades. Find help navigating the complexities of the new health care legislation, Medicare, Medicaid and other medical deductions.

Posts: 1
Registered: ‎03-21-2017

Critical illness payouts

I was diagnosed with cancer last year and received  a substantial payment from my  critical illness insurance. Is this taxable income?

Trusted Council Member
Posts: 6,191
Registered: ‎02-23-2016

Re: Critical illness payouts

Hi mlmconnell,


Welcome to the H&R Block community.


Health insurance payouts of any kind are not taxable income.  Even with a health savings account or other type of medical savings account distributions are not taxable so long as they are used to cover medical expenses.


If you have any other questions I'll be glad to help.



Senior Tax Advisor (Tampa, FL)

Posts: 1
Registered: ‎02-11-2018

Re: Critical illness payouts

" long as they are used to cover medical expenses"

What if the funds were used to pay other expenses. not strictly medical?

Associate (Pioneer)
Posts: 38
Registered: ‎02-22-2017

Re: Critical illness payouts

Hello and welcome to the community.


The expenses must be directly related to your medical need, medical bills or prescriptions or non restricted items such as over the counter medicines or a wheel chair. If it is not directly related to the medical condition (such as to buy food or pay rent), these funds become taxable.

Roger H,

Tax Specialist, Canton, Ohio