Reference no: EM132817165

Stephanie works at Madison, Co. where she earned a salary of $75,000. Stephanie and Steven participate in a healthcare plan through Madison, Co., where the company covers all insurance premiums ($10,000). Madison, Co. also offers employees discounted on-sight childcare. The couple's two children (ages 6 and 8) both go to childcare at Madison, Co (the total cost of $16,000 is paid half by Madison, Co. and half by Stephanie).

During the year, the couple also received an insurance settlement from a car accident resulting in physical injury. The insurance company paid $23,000 to reimburse medical expenses and $25,000 in lost wages for the period following the accident when Steven was unable to work.

Problem 1: How much of the medical expenses reimbursement and lost wages must be included as gross income in Stephanie's and Steven's tax return, assuming that they paid the disability insurance themselves?