Self-Insured Med. Reimburs. Plan & Income Exclusion & Domestic Partners

[Guest jac]

Does Rev. Ruling 2006-36 apply to section a self-insured medical reimbursement plan described in Treas. Reg. section 1.105-11?

The issue in the Rev. Ruling is whether amounts paid to an employee under a reimbursement plan are excludable from the employee's gross income under section 105(b) if the plan provides that amounts may be paid as section 213(d) medical benefits to designated beneficiaries (non-spouse, non-dependents, non-employee).

The answer is no, the amounts are not excludable, and in fact, none of the payments made to any person, including amounts paid to the employee, spouse, or dependents to reimburse medical expenses, are excludable from gross income.

The Rev. Ruling discusses the issue in the context of an HRA, but it seems like this could cover plans described in Treas. Reg. section 1.105-11 (self-insured medical reimbursement plan).

Can anyone shed some light on this?

Thanks!

[Guest WelfareBoy]

Jac,

If you're referring to FSAs that allow reimbursement for claims incurred by a non tax-dependent of the employee, Rev. Ruling 2006-36 applies (read the Rev. Ruling in conjunction with Rev. Ruling 2005-24). You could argue that the salary-reduction feature of the FSA makes it dissimilar enough to the HRA that 2006-36 should not apply, but the IRS' theory is the same for FSAs or HRAs that reimburse expenses for non tax-dependents.

The simple solution would be for the non tax-dependent's share of the premium for the HRA to be paid with after tax dollars, and any employer contribution on behalf of the non tax-dependent must be imputed to the employee's income. HRA distributions are then tax free from the HRA to the non tax-dependent. If you're running an HRA, there should be a premium rate developed for COBRA purposes.

Hope this helps.

[Jacmo]

The medical reimbursement plan you're describing under 105 is a MERP, and an HRA is a type of MERP. That's why they seem so similar.