Outside Insurance in Pre-Tax Premium Account

[Guest loricraun]

Here is an interesting question:

A 50+ employer group currently has a Pre-tax Premium Account including group health, group dental, and group vision. However, several employees have spouses whose group health deductions (with other employers) are not on a pre-tax basis.

Question: Can this employer add to their current plan an Outside Insurance Premium Account which will allow an employee to run his/her spouse’s outside group insurance premiums through this employer’s plan on a pre-tax basis?

I don’t think it can be done, but the employer tells me he has heard of other groups doing it.

I appreciate any help you can give me.

[Guest R Blair]

Unfortunately you cannot do this for any premium for insurance not offered by the employer who sponsors the plan.

If the plan also includes an FSA for medical expenses, the employees may include expenses incurred by their spouse and qualified children as well as themselves regardless of medical coverage.

My employer has a group medical which pays only for the employee. If an employee elects dependent coverage under the group plan, his premiums can be paid with pre-tax dollars.

I chose to not insure my child under the group plan, but cannot use pre-tax dollars to pay the premium on the outside insurance. I can use my FSA dollars to pay his co-payments and expenses even though he is not insured under our major medical.

Hope this helps.

[mroberts]

If I'm not mistaken, premiums paid for medical insurance on an after-tax basis can be deducted on the employee's tax return. I'm not an expert on this, but my family has many accountants and I believe I've heard this at the dinner table before. I don't beleive 100% of the premiums are tax deductible, but at least a portion of them should be. Have this person get in touch with their accountant.

[Guest pauljose]

AFAIK, outside insurance premiums can be done thru a 125 plan only as follows.

A personal insurance reimbursement account must be set up in a full flex 125 plan. Premiums are eligible for reimbursement only for individual policies on which the employee is the primary insured. So, getting an individual policy for the spouse because it's cheaper would not fly. And, of course, premiums for the spouse's group coverage (e.g. their payroll deduction at their work) are NOT eligible.

Paul Meahl

[Guest svandeven]

Does anyone know about a situation where the employer offers group insurance coverage to their employees. The employer pays the premiums direct and deducts them. And of course this is not income to the employee.

Now what about someone whom ops out of the group insurance plan because they can get better rates outside of the plan. The employer offers to reimburse employee only for the amount paid for insurance. What is the treatment here?

I think I have read somewhere that this is not income to the employee as long as it is only for premiums paid. Can anyone point me to a site on this?

[Kirk Maldonado]

Revenue Ruling 61-146, 1961-1 C.B. 25.