Firm incurred expenditure on medical treatment of employee’s family is included/excluded in National Income

Yes,

it is a part of the compensation of employees and, therefore, it will be included in the national income.

Expenditure on medical treatment of employees family is part of the compensation of employees.

Compensation of employees is factor payments received by the households in return for their factor services to the production process.

It adds to the flow of goods in the economy.