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105 Health Plan - reimbursement question


Guest jc1457

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Guest jc1457

I have been reading this all night and am confused. Can someone please clear this up for me.

My question is with regards to a Section 105 Health Plan. Can a participant submit for reimbursement health insurance premiums paid by their spouse under the spouse's employer's plan? The premiums were paid on an after-tax basis.

Is the same answer true for Sec 125 plans?

Thank you so much, this is much appreciated.

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For what its worth, the only 'tea leaves' from the IRS weighing in on the question you ask of which I am aware were in the Preliminary Draft of IRS Examination Guidelines for Cafeteria Plans (Spring 1998). In that document it was implied that the insurance policy had to be owned or held in the name of the employer or employee, not the spouse or the spouse's employer.

Even more attenuated is that on April 6, 2006, EBIA conducted an Web Seminar, "Individual Health Insurance Policies in the Workplace." One of the PowerPoint slides in that presentation included the following:

Can the individual policy be owned by the employee's spouse or other tax dependent?

--Informal IRS guidance indicates this probably permissible

--But the issue is unclear

----Does payment of premiums on a policy owned by spouse qualify for exclusion under Code § 106?

----Does payment of premiums on a policy owned by spouse constitute impermissible participation under Code § 125?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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I am not clear on the OP.

What is this "Section 105 Health Plan"? Is it a stand alone MERP or is it an FSA? How is it funded?

Is the participant covered under the spouse's coverage ?

What is the participant a participant of ?

What also puzzles me is that the OP refers to "spouse's employer's plan" yet the premiums are paid "after-tax". I do not recal ever seeing an employer plan with after tax premiums.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest jc1457
I am not clear on the OP.

What is this "Section 105 Health Plan"? Is it a stand alone MERP or is it an FSA? How is it funded?

Is the participant covered under the spouse's coverage ?

What is the participant a participant of ?

What also puzzles me is that the OP refers to "spouse's employer's plan" yet the premiums are paid "after-tax". I do not recal ever seeing an employer plan with after tax premiums.

I'm sorry - I always think I am giving enough info - and then realize how much is missing. The plan is not a flexible spending account. The employee does not contribute at all - the employer reimburses medical expenses up to $5000 in each calendar year. Whatever amounts are not used are forfeited - not carried over from year to year.

One employee wants to be reimbursed for premiums for health insurance coverage - paid by her husband who has a separate employer. (She is also covered under this policy). My understanding - although I am skeptical - is that the premiums were paid by the husband through payroll deduction with after -tax dollars.

I hope this helps. Thank you.

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Guest lmccormick

I pretty much asked this same question in the other section on health plans. We have an HRA/105 plan and it does allow reimbursements of individual health insurance policies.

I had this same scenario in that the employee wanted to tap into the HRA ($5000 per year available) to pay for the spouse's individual plan which was paid for with after tax dollars. The plan covered the spouse and dependents/kids. Our reimbursement forms make it clear that the employee can't double-dip and they did have that explained to them in detail.

Now in another state we reimburse a set amount per month for individual health insurance premiums on a taxable basis because that state does not allow reimbursement of individual premiums by an employer (even though the IRS does). So he can't use the HRA funds that are available to him because of state rules so we pay him extra to cover the premium but it's taxable.

That is a solution in the event you're unsure. Just treat the cost as taxable. Then they don't have to prove anything to you.

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I pretty much asked this same question in the other section on health plans. We have an HRA/105 plan and it does allow reimbursements of individual health insurance policies.

I had this same scenario in that the employee wanted to tap into the HRA ($5000 per year available) to pay for the spouse's individual plan which was paid for with after tax dollars. The plan covered the spouse and dependents/kids. Our reimbursement forms make it clear that the employee can't double-dip and they did have that explained to them in detail.

Now in another state we reimburse a set amount per month for individual health insurance premiums on a taxable basis because that state does not allow reimbursement of individual premiums by an employer (even though the IRS does). So he can't use the HRA funds that are available to him because of state rules so we pay him extra to cover the premium but it's taxable.

That is a solution in the event you're unsure. Just treat the cost as taxable. Then they don't have to prove anything to you.

lmccormick,

Does that state have a statute or regulation that declaratively makes such illegal? Does that state make it legal to reimburse individual policy premium payments with pre-tax dollars but not with after-tax dollars as you are doing?

The reason I ask is that I understand the state being able to regulate what will/will not be subject to state income taxation and thus on what income the employer must compute and withhold state income tax. However, it does seem odd that the state could somehow dictate those issues for federal income tax purposes.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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lmccormick:

I, too, would be interested in the wording of the state regulation.

Texas went so far as to say that merely having a premium paid through a section 125 plan made the policy a group policy, regardless of the employer involvement.

As John so wisely pointed out, ERISA considers this type of an arrangement as employee money, not employer money.

If the employee pays the premium on a policy in which the employer had no involvement whatsoever (other than providing the payroll deduction), how in the name of common sense does that policy become a group plan?

Don Levit

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If an employee gets reimbursed for the premium paid, Did the employee really pay the premium or is it that the employee advanced the premium for the employer?

In the scenario where the employee gets reimbursed, the employee has no expense that could be considered for tax deductibility but the employer does have a deductable expense.

Logic and common sense tells me that it is the entity with the expense and tax deduction whose rules govern.

Many states have similarly worded regulations usually under either their Small Group Health Plan or List Billing regulations or both. I think that NJ and a few others also have it in their Income Tax regulations regarding exclusions from income.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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If an employee gets reimbursed for the premium paid, Did the employee really pay the premium or is it that the employee advanced the premium for the employer?

In the scenario where the employee gets reimbursed, the employee has no expense that could be considered for tax deductibility but the employer does have a deductable expense.

Logic and common sense tells me that it is the entity with the expense and tax deduction whose rules govern.

Many states have similarly worded regulations usually under either their Small Group Health Plan or List Billing regulations or both. I think that NJ and a few others also have it in their Income Tax regulations regarding exclusions from income.

Hey, George,

Do you know of any webpage that lists out, state by state, the Small Group Health Plan or List Billing regulations?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Unfortunately, I was never able to find such a website, but I last looked way back in 2004. Someone might have created one since.

It is also possible than a good small group agent might have a list that was prepared by one of the providers of a national program. In 2002 Conseco had such a list.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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