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Medicare Overpayments and Income Tax Deductions

A person or entity is entitled to deduct from income for tax purposes a repayment of Medicare reimbursements to a Medicare carrier, intermediary or the Health Care Financing Administration ("HCFA"), whichever is applicable. For instance, if XYZ improperly receives Medicare reimbursements, such receipts are subject to income tax even though XYZ is not legally entitled to retain such money. XYZ may subsequently be required to repay the Medicare overpayments to the carrier, intermediary or HCFA. When XYZ repays the money, XYZ will be entitled to a deduction from income for tax purposes if the payment is characterized as a repayment of Medicare overpayments. If the payment is characterized as a fine or a penalty, however, XYZ would not be entitled to a deduction. In such case, XYZ would have to pay income taxes on the receipt of money it did not retain, a windfall for the Internal Revenue Service. A person should seek the advice of qualified counsel prior to refunding any payments to and entering into any agreements with a carrier, intermediary or HCFA.
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