Benefit payments from individually-owned medical expense policies are generally:

• A. Exempt from income taxes
• B. Taxed as ordinary income
• C. Taxed as a dividend
• D. Tax credit given for amount of benefit payment

Answer: (A)

Benefit payments from individually owned medical expense policies are generally tax-free because they are reimbursements for medical care, not income. The IRS treats amounts paid out to cover qualified medical expenses as non-taxable, provided you use the funds for medical costs. If you received a benefit that exceeds your actual medical expenses or used it for non-medical purposes, tax rules could apply, but under typical circumstances these payments are exempt from income taxes.