Tax issues when employer pays COBRA, etc.

[Guest tonjer]

I have a few questions regarding the taxability of the employer paying for its employee's benefits in the following situations:

We have a situation where an employer has been giving an employee money to pay the COBRA premiums at the spouse's former employer. The employer has also been giving another employee money to purchase health insurance at the spouse's company. The employer has not been reporting the above as income to the recipient. In one situation, the employee did report the amount received as income. To fix this, does the employer need to pay the FICA tax for both itself and the employee?

We also have a situation where the emloyer has been paying for an employee's dental bills (up to $1,000/ year). Is this taxable income to the employee? There is no plan, the employer just does it.

Lastly, the employer has been paying Medicare supplemental premiums for 2 retirees. Is this taxable income to the retiree?

Any guidance would be appreciated on what the employer should do to remedy the above situations.

Thank you.

[GBurns]

He should have a written plan with a Board resolution. The IRS and Courts have indicated that such benefits are not subject to retroactive adoption.

Look on the IRS website for a Coordinated Issue paper on the subject and look at Revenue Ruling 61-146.

If done under an adopted medical expense (or premium reimbursement) plan the payments are not taxable income to the employees or former employees, however, the employer has to get proof of payment of the insurance premiums.

[Kirk Maldonado]

I disagree with GBurns.

Adopting a written plan does not automatically make the benefits tax-free. You have to satisfy all of the rules of Section 105(h) to be a tax-free benefit. For example, the plan could only cover the CEO of the company.

[GBurns]

I certainly hope that you do not expect every post to dot every "i" and cross every "t".

It goes without saying that the plan must be compliant.

If the plan satisfied 105(h) but was never adopted by the company it would not be valid and the deductions would be disallowed and the benefits would not be tax free.