Guest mdtanx Posted May 30, 2002 Share Posted May 30, 2002 If our small business (4-7 people) has no group health plan, and the employees select their own private health plans, can the employers re-imburse the employees for part or all of the cost if the employee submits receipts? Thanks! Link to comment Share on other sites More sharing options...
mroberts Posted May 30, 2002 Share Posted May 30, 2002 Yes, but whatever the employer reimburses the employee for is taxable income. Link to comment Share on other sites More sharing options...
Guest mdtanx Posted May 30, 2002 Share Posted May 30, 2002 Do you know where I could find that spelled out? I've scoured the seemingly-relevant IRS pubs to no avail. That leads to the followup question: Is there any way to let individuals have individual plans and allow either the employee or employer avoid the tax hit on the money paid? THANKS! Link to comment Share on other sites More sharing options...
mroberts Posted May 30, 2002 Share Posted May 30, 2002 I'm not sure where it's spelled out in the IRS regs. Perhaps someone else can help you with that. I'm not aware of any way the employer/employee can avoid the tax hit since we're talking about individual policies. This is one of the reasons GROUP insurance was created. Link to comment Share on other sites More sharing options...
Guest b2kates Posted May 30, 2002 Share Posted May 30, 2002 how about the employer purchasing the individual policies through a cafeteria plan? Link to comment Share on other sites More sharing options...
papogi Posted May 30, 2002 Share Posted May 30, 2002 The way to get around the tax issue is to set up a Section 125 plan. That's really the fundamental purpose behind it. The problem small employers have is grappling with the various non-discrimination rules, particularly the key employee test. Also, the employer will need to shift some of the premium to the empoyee. Link to comment Share on other sites More sharing options...
Guest mdtanx Posted May 30, 2002 Share Posted May 30, 2002 Regarding the Cafeteria plan option, are you saying that a small business could set up a cafeteria plan so that the employee either received cash (taxable), or received money to be used to a health plan that they privately choose (not a group plan). I thought the health plan in a cafeteria plan had to be a group plan.... Link to comment Share on other sites More sharing options...
Kirk Maldonado Posted May 30, 2002 Share Posted May 30, 2002 I think that people need to read Rev. Rul. 61-146, 1961-1 C.B. 25. Kirk Maldonado Link to comment Share on other sites More sharing options...
GBurns Posted May 30, 2002 Share Posted May 30, 2002 The employer can easily set up a section 105 medical reimbursement plan to handle the reimbursement of the premium to the employees. The reimbursement to the employees is NOT taxable income if the rules of Treas Regs 1.105-11 are followed along with the guidance set out in Rev Ruling 61-146. A section 125 would most likely be of no value but should be considered if there is a possibility of converting the policies to be employer provided coverage. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
Guest mdtanx Posted May 31, 2002 Share Posted May 31, 2002 Is there something definitive that I could read about section 105 plans and individual health policies (vs. group policies)? Link to comment Share on other sites More sharing options...
Guest b2kates Posted May 31, 2002 Share Posted May 31, 2002 look at 105(e) it talks about health plans, not the underlying insurance policy. the document can establish the plan, while the individual policies are only the funding mechanism Link to comment Share on other sites More sharing options...
Guest mdtanx Posted May 31, 2002 Share Posted May 31, 2002 I'm sorry. I have read and read on this subject, but it is really baffling to me. When you talk about Section 105 plans, I assume you are talking about this section 105: http://www4.law.cornell.edu/uscode/26/105.html And when you talk about section 105 e, you are referring to the quoted text below: "(e) Accident and health plans For purposes of this section and section 104 - (1) amounts received under an accident or health plan for employees, and (2) amounts received from a sickness and disability fund for employees maintained under the law of a State or the District of Columbia, shall be treated as amounts received through accident or health insurance. " Are you saying the language here is commonly understood to allow the empoyer to set up a fund, and through this fund, make *non-taxable* reimbursements to employees for individual (not group) health insurance premiums? That's what I think I understand you to be saying. If that is so, is there something I can read that tells me how to set up and operate such a plan? THANKS! Link to comment Share on other sites More sharing options...
Kirk Maldonado Posted May 31, 2002 Share Posted May 31, 2002 GBurns: You need to read Section 1.105-11(B)(2). Kirk Maldonado Link to comment Share on other sites More sharing options...
Guest mdtanx Posted May 31, 2002 Share Posted May 31, 2002 http://squid.law.cornell.edu:9000/cgi-bin/...05-11&TYPE=TEXT Section 105-11 (B)(2) (2) Other rules. The rules of this section apply to a self-insured portion of an employer's medical plan or arrangement even if the plan is in part underwritten by insurance. For example, if an employer's medical plan reimburses employees for benefits not covered under the insured portion of an overall plan, or for deductible amounts under the insured portions, such reimbursement is subject to the rules of this section. However, a plan which reimburses employees for premiums paid under an insured plan is not subject to this section. In addition, medical expense reimbursements not described in the plan are not paid pursuant to a plan for the benefit of employees, and therefore are not excludable from gross income under section 105(B). Such reimbursements will not affect the determination of whether or not a plan is discriminatory. Link to comment Share on other sites More sharing options...
Guest b2kates Posted May 31, 2002 Share Posted May 31, 2002 An employer is permitted to provide under section 105 discriminatory health insurance. Since the repeal of section 89, it is at the option of the employer to provide to any individual health insurance and the coverage is income tax free. I have had clients that offer health insurance to officers only; however it does become more expensive since it is not a group policy. There is no requirement that it be a group policy, or another way of looking at it is a group of 1. Link to comment Share on other sites More sharing options...
papogi Posted May 31, 2002 Share Posted May 31, 2002 I'm backing up here. 61-146 does seem to be the easiest way to go. I always have my head buried in 125, so I admit exploring 61-146 and its use here has been educational. Under 61-146, the employer ultimately pays the entire amount. Under 125, the employer and employee both pay (but the employee's salary reduction ulimately means that the employer pays the entire amount), so 125 would still be good if the employer ever thinks that an employee portion will be required. Link to comment Share on other sites More sharing options...
Guest mdtanx Posted May 31, 2002 Share Posted May 31, 2002 I have now read Section 105, Section 213, CFR Title 26, 1-105-11, and IRS Rev. Rul. 61-146 . In addition I called the IRS 800 number for Tax law questions. We're trying to figure out if we can set up our health benefits in the following way. Our small business has 4-6 employees. 1. The company creates a *written* plan which states the company will re-imburse the employee up to $400/month for their individual (not group) health insurance policy premiums. 2. The reimbursement is not taxable (is not part of gross income). See IRS Ruling 61-146. 3. The employee will submit proof of insurance coverage and its cost via receipts to the company. I have some questions: 1. Is this legal? The IRS help line and 64-146 indicate that it is ok. Trigon said it is not but couldn't definitively cite anything (they thought perhaps ERISA?). The Virginia Bureau of Insurance also indicated that it was ok. 2. Is this classified as a self-insured medical re-imbursement plan? 3. Is there is a way to set it up so that employees can use whatever is left from the $400/month (after paying the insurance premium) for other medical expenses that they incur? 4. Are there some publications or articles that I can read to give me more details about this? Thanks! Link to comment Share on other sites More sharing options...
papogi Posted May 31, 2002 Share Posted May 31, 2002 Based on my understanding of the regs and the previous posts... Question 1: 64-146 clearly states that this is legal under 106. Question 2: It is a self-insured medical reimbursement plan as described in 105(h)(6). Question 3: A self-insured medical reimbursement plan can reimburse expenses described in 213(d), including insurance for medical care [213(d)(1)(D)], so it should be able to reimburse other medical expenses as you described. Does anyone see this summary as wrong? This has been a very good thread. Link to comment Share on other sites More sharing options...
Guest Kathleen Meagher Posted June 6, 2002 Share Posted June 6, 2002 Coming in late to this discussion.... Because you are reimbursing for the cost of the health plan, and not for amounts expended for actual treatment, section 105 would not be relevant here. Section 106 is the source of the exclusion from income. Look at Rev. Rul. 75-539, which says that an employer's payments to reimburse employees for payments for medical premiums are excluded from income under section 106 as long as the employer requires adequate documentation. There are also some PLRs on this issue, but I don't have the cites readily available. Unlike section 105(h), section 106 does not have a non-discrimination provision, so you don't need to worry about that. Link to comment Share on other sites More sharing options...
SLuskin Posted June 11, 2002 Share Posted June 11, 2002 We include a Private Individual Health Insurance Reimbursement account in Cafeteria Plans that we design and administer. We do the discrimination testing. This way, the reimbursements are pretax. Link to comment Share on other sites More sharing options...
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