Medical expenses, subsidy, and gift tax

Hi all

My wife (mostly) received some medical treatment in late 2024 (and early 2025). I paid the bills and claimed the deduction on my taxes (I have employment income, she's a housewife). She applied for a subsidy from Tokyo-to in early 2025, which looks like it will be paid out soon.

1. How do I report this for income tax? Deduct the subsidy from this year's medical expenses? File an amended tax return for 2024? Treat it as miscellaneous income for her? Something else?
2. I've transferred an amount just under the gift tax limit to her this year. Given that I paid the original bills and she received the subsidy, do we need to worry about a gift tax implication?