10% penalty exception for medical

[holodeck]

Does the 10%penalty exception on form 5329 for medical expenses over the 7-1/2% of income apply to the entire family’s or just the taxpayer who withdrew from his or her Simple IRA?  Plan originated 5 years ago.  1099 shows "01" "Simple".

[dkh · Accepted solution]

If I were preparing the return I would allow medical expenses for taxpayer, spouse and dependents claimed on the tax return.

[holodeck]

That's my thinking too but I can't find a clear description not on the IRS website, 5329 instructions. Google has too much conflicting info. Thanks so much for taking the time to answer.

[qbteachmt]

"Google has too much conflicting info"

But the IRS has specifics:

https://www.irs.gov/instructions/i5329

https://www.irs.gov/taxtopics/tc502

To determine whether an expense is deductible, see Can I Deduct My Medical and Dental Expenses? For additional information on medical expenses, including who qualifies as your dependent for purposes of this deduction, how to figure, and how to report the deduction on your return, see Publication 502, Medical and Dental Expenses.

[holodeck]

5329, page 4, exception 05 does not specify if expenses over the 7-1/2% are for the whole family or just the spouse who withdrew. IRS website Exceptions to The Tax on Early Distributions does not specify. Taxpayers will itemize and have $7800 out of pocket over the 7-1/2%. I appreciate your response. I still can’t find out if the spouse can use the total $7800 which consists of the qualified medical expenses for the taxpayer, spouse and dependent. Thanks again.

[qbteachmt]

Let's review:

Yes, this got addressed: "5329, page 4, exception 05 does not specify if expenses over the 7-1/2% are for the whole family or just the spouse who withdrew." The person whose Account this is has to have the qualifying conditions. Then, the Costs have to qualify (cannot be, for instance, Fat Camp). Then, yes, this got addressed: "IRS website Exceptions to The Tax on Early Distributions does not specify."

Because the Definition of "whose costs can you cover" and Definition of Dependent has been covered in Pub 502.

I gave resources to help you learn Whose Medical Expenses Can You Include, Who is a Dependent, and What Can I Deduct.

"I still can’t find out if the spouse can use the total $7800 which consists of the qualified medical expenses for the taxpayer, spouse and dependent."

It's all there in the Three Links. You have to read them.

[cbriell]

Sorry to hijack the post, but once you have filed the Medical exception (05), what happens next? If the retirement account vendor withheld the 10% upon distribution, how do you get it? How do you know if the exception has been approved by the IRS?

[sjrcpa]

Whatever withholding is shown on the 1099-R gets reported as federal tax withholding on the 1040.

Total tax on 1040 - total payments = refund or balance due.  There is no "get the 10% back" per se.

IRS accepts the exception unless/until they contact you.