Do I need to pay taxes on money raised through a medical crowdfunding campaign?

I really need some tax guidance about a crowdfunding situation my family is in. Last November, my daughter (14) was diagnosed with a rare form of leukemia that required intensive treatment. When she started treatment, I had to take a lot of unpaid leave from my job to care for her, plus we had to travel to a specialized hospital about 300 miles away for an 8-week treatment program. A friend suggested starting a medical crowdfunding campaign to help with expenses. I set one up, thinking we might get a few thousand dollars from local friends and family. The response completely blew me away - the campaign ended up raising around $42,000! This money has been absolutely life-saving for covering medical expenses not covered by insurance, travel costs, and replacing my lost income. Now I'm getting anxious about tax season. I haven't received any tax forms from the crowdfunding platform, and I'm not sure if this money is considered taxable income. I'm especially nervous because I had a really bad experience with the IRS about 7 years ago after my divorce when my ex-spouse's tax issues caused problems with my returns. The IRS ended up garnishing my refunds for several years until I was able to settle through an offer in compromise. The last thing I need right now is another tax headache while dealing with my daughter's health. Does anyone know how crowdfunding money for medical expenses is treated for tax purposes? I'm terrified of making another mistake.

0 coins

18 comments

Malia Ponder

•8M

Good news - the IRS generally does not consider money received through medical crowdfunding campaigns as taxable income. These funds are typically considered gifts to the recipient, and the person receiving gifts doesn't pay taxes on them. While there is technically a gift tax, it's the giver who would be responsible for that, not you as the recipient. And even then, individuals can give up to $17,000 (as of 2023) to any person without having to report it, and most donors to medical campaigns give well below that threshold per person. The crowdfunding platform doesn't issue tax forms to you because from their perspective, they're just facilitating gifts between individuals. You generally won't receive a 1099 or other tax form from them. If some of the funds were donated by businesses as a charitable contribution, that's still not your concern tax-wise - that's between the business and the IRS. Since the money was used for medical expenses, keep receipts of all your medical costs. Even though the crowdfunding money itself isn't taxable, your medical expenses might qualify for deductions depending on your situation.

0 coins

Holly Lascelles

•8M

Thank you so much for this information! It's such a relief to hear that these funds aren't considered taxable income. Just to clarify - even though the total amount is over $40,000, I don't need to report it anywhere on my tax return? It won't trigger any red flags with the IRS? Also, regarding the medical expense deductions - can I still claim medical expense deductions if I used the crowdfunding money to pay for them, or does that create some kind of double-benefit problem?

0 coins

Malia Ponder

•8M

The total amount doesn't matter in this case - whether it's $4,000 or $400,000, gifts are not considered taxable income to the recipient. You don't need to report these funds anywhere on your tax return, and receiving gifts shouldn't trigger any red flags with the IRS. For medical expense deductions, this gets a bit more complicated. You can only deduct medical expenses that you personally paid for, not expenses paid by others (including through gifted funds). Since you used the crowdfunded money to pay these expenses, technically you did pay them, but you did so with gifted funds. The conservative approach would be not to claim deductions for expenses covered by the crowdfunding gifts to avoid any appearance of a double benefit.

0 coins

Kyle Wallace

•8M

Hey I went through something similar last year when my brother needed a kidney transplant. We raised about $28k through online donations and I was freaking out about taxes too. I found this amazing service that specializes in analyzing tax documents and giving you personalized guidance - it's called taxr.ai (https://taxr.ai). I uploaded all my documents including screenshots of the crowdfunding totals and some of my medical receipts, and they explained exactly how to handle everything. They confirmed what the previous commenter said - that medical crowdfunding is considered gifts and isn't taxable to you. But they also gave me specific guidance about how to document everything in case of an audit. Given your previous issues with the IRS, I think having something in writing from tax experts explaining your situation would give you peace of mind. It was super helpful for me since I was also worried about triggering audits.

0 coins

Kyle Wallace

•8M

You only need to provide what's relevant to your tax question. I just uploaded my crowdfunding statements and some medical bills, nothing super personal like my SSN or anything. They use the same security as banks, and they gave me an answer within 24 hours. Regarding business donations, they actually addressed that too! They explained that if a business donates to an individual's crowdfunding campaign, it's still generally considered a gift to the recipient. The business might have different tax considerations on their end (it might not be deductible as a business expense for them), but that doesn't affect how you as the recipient treat it. It's still not taxable income to you regardless of whether it came from individuals or businesses.

0 coins

Gianni Serpent

•8M

Just wanted to follow up - I ended up trying taxr.ai like you suggested, and it was incredibly helpful! I had a complicated situation with both individual and business donations to my mom's medical fund, plus some questions about how to handle the timing of expenses that crossed over two tax years. They provided a detailed explanation that walked through exactly how to treat the funds for tax purposes. They even gave me a document outlining the relevant tax code sections that explained why the crowdfunded money wasn't taxable income. I'm keeping this in my records in case the IRS ever questions it. Huge weight off my shoulders, especially since my mom's medical situation is stressful enough without tax worries. Thanks for the recommendation!

0 coins

Henry Delgado

•8M

I see you mentioned previous issues with the IRS. One thing that might help you get peace of mind is talking directly to an IRS agent about this situation. I know calling the IRS sounds like a nightmare (I've spent HOURS on hold before), but I recently discovered this service called Claimyr (https://claimyr.com) that got me through to an actual human at the IRS in under 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I used it when I had questions about a similar gift situation (inheritance in my case, not crowdfunding, but still a large sum I was worried about reporting). The IRS agent I spoke with confirmed that gifts received are not taxable income and walked me through exactly what I needed to do. Having that direct confirmation from the IRS itself really helped me sleep better at night. Given your previous garnishment situation, I'd definitely recommend getting official clarification directly from them.

0 coins

Henry Delgado

•8M

It's not a scam - they use an automated system that essentially does the waiting for you. They don't have any special connection to the IRS, they just have technology that continually calls and navigates the IRS phone tree until it gets through, then it calls you when a human answers. I was skeptical too, which is why I included the video link so you can see how it works. I understand the skepticism - I felt the same way! But after waiting on hold with the IRS for 3+ hours and getting disconnected twice, I was desperate enough to try it. The service calls the IRS repeatedly using their system until they get through, then they call you when they have an agent on the line.

0 coins

Joshua Hellan

•8M

I have to come back and admit I was completely wrong about Claimyr. After my skeptical comment yesterday, I decided to try it this morning since I was at my wit's end with my tax issue. I've been trying to reach the IRS for MONTHS about an issue with my 2021 return where they claimed I didn't report some income (I did). I've sent letters, tried calling at least 15 times (always got the "call back later" message), and was about to hire a tax attorney for $2,000+ just to resolve this. The Claimyr service actually got me through to a real IRS agent in about 17 minutes. The agent was able to pull up my case, see that I had indeed reported the income, and is processing a correction. Issue resolved in one phone call after months of frustration. For anyone dealing with IRS issues, especially with a complicated situation like crowdfunding where you want official confirmation, being able to actually speak to an agent is invaluable.

0 coins

Jibriel Kohn

•8M

I just want to add that my dad went through something similar with a GoFundMe after his house burned down. His accountant told him to keep VERY detailed records of: 1) The total amount received from crowdfunding 2) All expenses paid using those funds 3) What category each expense falls into (medical, housing, etc) The accountant said that while the funds themselves aren't taxable as income, having this documentation is essential if you're ever questioned about it. Keep screenshots of the crowdfunding campaign total and donor list if possible.

0 coins

Jibriel Kohn

•8M

My dad actually didn't set up a separate account, and his accountant said that was his biggest mistake. She strongly recommended having a dedicated account for crowdfunding money to create a clear paper trail. It doesn't have to be anything fancy - even just a free checking account where you deposit all the crowdfunding money. That way, if you're ever audited, you can clearly show the money coming in from crowdfunding and then going out for qualified expenses. Without that separation, it gets really muddy trying to prove which dollars went to which expenses. If possible, I'd recommend transferring the funds to a separate account now and using that for all remaining expenses.

0 coins