How to Deal with Medical Bills Update

Here’s something I wasn’t sure existed anymore: Hospitals that will forgive big bills incurred by people who have no money to pay them.

Someone I know recently got a letter announcing that the hospital that was owed over $45,000 has granted this person “charity status,” and quashed the bill. That’s right: 45,000 big ones.

This is a very interesting category of medical bill outcome, because it does not involve the IRS. The medical provider simply wipes out the bill, and the person who owed that money no longer owes it and does not have to pay income taxes on the forgiven amount.

Charity status is a very different situation from one in which a credit card bill has been written off. The credit card company will issue the person a 1099 showing the written off amount as income. The person who could not pay, say, $900 on a credit card, will now have to pay income taxes on that $900. Depending on how down-and-out the person is, that might end up being zero in taxes, but it might be as much as 30%, because for sure if the federal government considers it taxable, so will a state government.

So, it seems to me, given these two very different tax results, people who have medical bills they can’t pay (and know they never will be able to pay) should ask the medical provider to be granted charity status. Not a write-off.

Try it. It never hurts to ask. Apparently, there are still some good people left in this world.