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I have a client that offers group health insurance to its employees. The employer contributes up to $500 per month toward the cost of the benefit for each eligible employee. One employee does not enroll in the group health plan because he is covered by his wife's group health plan through her employer. The employer has decided they want to pay this employee the $500 benefit that he is "missing out on." The employee and employer insist that this should be considered a non-taxable health insurance reimbursement. Their argument is that all the other employees receive the $500 employer paid benefit non-taxable. From everything I have read, that is wrong and it is considered cash in lieu and is taxable to the employee on his W-2. Can anyone provide me with an authoritative source (IRS Notice, etc.) that addresses this and states that is should be taxable income to the employee (assuming I am correct)? Thanks in advance!

Good afternoon to all, A plan of ours has a 3 doctors plus staff. While all docs are HCEs, only one is also Key - the 100% owner. The other 2 doctors have signed irrevocable waivers of participation and are not part of the plan. They are in the census in our software program, classified as being in an ineligible class of employees. When we run the Top Heavy calculation, we get error messages saying that we have failed to meet the TH requirements because these two doctors are not getting a TH minimum contribution. If they have signed the irrevocable waiver, it is our understanding that they are not eligible for any portion of the plan at any time, including the TH minimum. Are we correct on this? Yes we have read the plan document and yes we have a call in to the software provider to see if we are coding things incorrectly. But in the meantime we wanted to ask the experts if these two doctors are supposed to be counted for any purposes in anything in the plan, Top Heavy or anything else? Thanks for any advice and don't shoot the messenger. Per usual I am being asked to resolve something on a plan that is not mine.

I am a former employee of a public university of Illinois, now receiving retirement benefits. Ordinarily that would include health insurance benefits, but I took the option to opt out of receiving that benefit in exchange for a monthly cash incentive. This money is subject to Illinois and federal income tax, which suggests to me that it is treated as wages and salaries. I wouldn't especially mind paying the income tax, except that I live in Texas (which has no state income tax) and now find myself having to file Illinois income taxes, which is a paperwork headache. It would be very helpful if I could divert this "salary" into a 403b or similar plan, as I did while I was employed. (The opt-out incentive will disappear when I turn 65 in a few years, at which time I will want to start cashing in those very 403b and 457 accounts.) I am still trying to track down who in Illinois has the authority to tell me if this can be done or not, but I would like to find out whether it is at least within the framework of IRS rulings to do so, and if so, whether other benefits plans make this kind of arrangement possible. (That would give me some ammunition if I try to request that such a program be created in the Illinois system.) So ... is it considered normal to treat health insurance opt-out incentives for retirees as income that can be placed pre-tax in a retirement plan? dave