Opting out of health coverage -- compliance issue

[Guest gnappi]

I have a client that allows employees to opt out of their health coverage if their spouse covers them under another plan.

If an employee opts out, they receive $150/mo.

The TPA administering this plan provided the individuals who opted out of the plan with a 1099-misc indicating the amount they received for opting out in box 6, medical and healthcare payments.

Is this in anyway correct?

Shouldn't the client have included these amounts in box 1 of form w-2 as earned income?

Any enlightenment would be greatly appreciated.

Thanks.

[Everett Moreland]

If an employee who can be covered under the plan of the spouse's employer can elect between coverage under the plan of the employee's employer or $150, this should be done under a cafeteria plan. If done outside a cafeteria plan then each employee who could elect the $150 is taxed as though the employee had received the $150.

You are right that the $150 is taxable as wages and should be reported on W-9, not 1099.

[Guest gnappi]

Would anyone be able to specify a site, reg., etc. that would indicate this.

thanks.

[Harwood]

From Publication 15, Circular E, Employer's Tax Guide:

"Cafeteria plan benefits under section 125. If employee chooses cash, subject to all employment taxes."

You can't report employment taxes [FICA] on a 1099

[Guest b2kates]

Further, it appears that the TPA does not understand the purpose for box 6 on 1099Misc. It is used to reflect payments to a healthcare provider; ie doctor, office, hospital...

[Moe Howard]

gnappi, is the employer's plan fully-insured or self-insured? Do those participants that did not opt out ... have $amounts withheld from their wages to help pay for the medical benefits ? Are those withholdings pretax ?