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Offering choice between employer-paid health insurance or a contributi


Guest geekster
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1. Because the employees were not parties to the case and did not have the ability to present a defense to taxation of the health payments the language quoted in Express Oil regarding the taxation of the employees is simply dicta and is not binding on other taxpayers or courts. An argument could be made that the amounts contributed by the employer were made under IRC 106 and not taxable to the employees. Q-9 in reg 1.125-1 is merely a proposed reg and has no force of law. Under Express Oil and Q-9 would union members whose representatives agree to employer provided health benefits in place of a salary increase be deemed to have taxable income on the amount of the health ins?

2. Under the logic of the Express Oil case the "taxable income" would not be reported to the employees or the IRS and the employees would not know that they were supposed to report the payments on their income tax returns which contradicts the purpose of wage reporting. Since it would not be reported no taxes would be collected on these amounts.

3. The Q-9 proposed reg is infinite in its application and would include as taxable any benefits that were made available at any time during negotiations prior to the date the employee was hired. For example an individual who before commencing employment chooses to be an employee with a lower a rate of pay and full health and welfare benefits instead of an independent contactor who would be paid more without benefits would have to include the value of the benefits as taxable income even though the employee never had a right to assign the income. However, the definition of a taxable benefit in Q-5 of proposed 125 regs is limited to cash, property or other benefits deemed taxable under the IRC which would exclude employer contributions to a health plan under IRC 106 which were never received by the employee.

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