When I retired from a municipal fire department this year, I was able to buy back my unused sick time, vacation time, and compensation time to purchase paid-up health insurance under the City Blue Cross/Blue Shield Plan. I was able to purchase $70,000 of pre-paid paid up health insurance which was paid directly to the City and they pay the monthly premiums until the $70,000 is exhausted. They predict this will be approximately 10 years.

The problem is they showed the $70,000 as additional income on my W-2 form for this year's tax return which puts me in a tax bracket making well over $150,000 (my wife and my combined income). My question is, since I paid the total amount ($70,000) this year, can I deduct the total $70,000 as a medical expense or does it have to be amortized?

A CPA told me the problem is the City received the total $70,000 and makes monthly health insurance premium payments and is not an insurance policy paid directly to an insurance company (Blue Cross/Blue Shield). He said if I had purchased a pre-payed insurance policy from the insurance company it would be all deductible this year. Since the City is making payments each month, only the monthly payments for the current year can be deducted as a medical expense.

I don't see the difference and why I am not allowed to take the total amount as a deduction since I am paying all the tax on it this year?

Please give me your thoughts.

I have answered this on another post.