Taxability of continuing benefits

[Guest jreddi]

We have an employee who has long since "retired". As he is the founder of the company, we have continued his benefits and have insured that his benefits would continue until some years in the future by signing a termination agreement. The termination agreement says that we will provide equivalent coverage to what he enjoys now, which, with individual plans and such, is impossible. This was done some years ago before anyone checked the healthcare contract to see if that was possible, which it isn't.

So, here we are trying to sort out the mess of continuing his benefits through means other than our group health plan.

Fly in the ointment #1: He is over 65 and entitled to Medicare.

Fly in the ointment #2: He has a family.

Fly in the ointment #3: The company wants to continue to pay for his and his family's coverage.

We have decided that we will terminate him from our group plan on June 30. He and his family will go on COBRA for 18 and 36 months respectively. And the company will pay for it.

We have decided that we will pay the former employee's Medicare and any supplemental Medigap insurance and any individual health plan for his family for the length of the employment agreement.

Now, the meat of the problem. Are there any tax issues relative to the employee if the company pays all of these premiums?

Any help, direction, with or without snickering, is appreciated.

John

[Kirk Maldonado]

Don't forget about your other programs, like life insurance, disability insurance, etc. Good luck trying to get the insurance companies to cover that individual.

[Guest b2kates]

For tax purposes only, a retiree generally maintains their "status" as an employee and such medical benefits are still income tax free under IRC 105,106.

[Guest jreddi]

Kirk: Luckily we only promised to continue his medical insurance and not the others.

Kates: He is not technically a "retiree" as we don't have a retiree health plan. What we are doing is just arranging for the financing of his future health plans through company funds. We're looking to pay the full boat on his COBRA, Medicare and any Medigap insurance for the next several years (until 2007). We are also going to pay the family's COBRA and any individual plans they may choose. His status is officially listed as terminated, not retired, so I am wondering what the tax issues are surrounding that.