A.J. is correct. It's important to remember that your dad must pay the medical institution or insurance company directly. If he gifts it to you and your husband (could gift each of you up to $14k this year without going over the gift limit for the year) you do not pay any taxes on the gift itself. If you would invest the money or have any earnings on the money (interest or dividends), then it is taxed just like any other assets you have.
Medical expenses are not considered a gift, and therefore will not be taxed to either party IF your dad pays the medical institution or insurance company directly.
Amy, what may go against common thinking, the person receiving a gift does not pay tax; it is not earned income. The person giving the gift, or the donor, is responsible for the gift tax, and as mentioned, they can gift up to $14,000 to everyone they know in 2013 with any tax implications
Your dad can gift up to $14,000 to you, and another $14,000 to your husband, another $14,000 to each child you may have, $14,000 to his neighbor Fred, and so on. You can use it as you wish.
As far as claiming it as a deduction, that is an accounting question, and would defer to an accountant for professional advice. But if you are not a dependent of your dad, and he gifts you money, and you, in turn have qualified medical expenses, you could itemize after medical expenses reach 7 ½ % of AGI. Again ,consult with an accountant.
A.J. and Tracy are correct in their answers. 14,000 is the annual "gift tax" exclusion this year. Just make certain he gifts no more than 14,000 to either of you. You might suggest having him make checks out for 12,500 to each of you, which will allow him to further gift 1,500 each if need be... Rod Miller, CFP, CLU, ChFC