Employer tax-free payment/reimbursement of individual disability policies

[Flyboyjohn]

Has this ever been legal?

If yes:

Any non-discrim testing?

Any change due to ACA?

OK to let each doctor choose pre-tax post-tax treatment (cafeteria benefit)?

Thanks

[GBurns]

Definitely not since 1984.

Are these employees the doctors? I do not understand your question regarding doctor choosing ?

[Flyboyjohn]

It's a medical practice, they want to let each doctor choose between having his disability insurance premium paid pre-tax or post-tax but I understand from your answer "no can do".

[jpod]

This absolutely can be done. See Rev. Rul. 2004-55.

[GBurns]

The first issue is the pre-taxing of the premiums. Unless the participating doctors are bona fide employees who are neither partners in a partnership, members of the LLC or more than 2% shareholders in an S Corp, they cannot pre-tax the premiums because they cannot participate in a section 125 cafeteria plan.

http://www.infinisource.com/media/11669/who_cannot_participate_in_a_cafeteria_plan__fsa_or_hra.pdf

If the policies are individual policies they cannot be reimbursed either tax free or post tax.

http://www.irs.gov/pub/irs-drop/n-13-54.pdf

I suggest that you check with your proposed insurance carrier to see what new plan designs they have come up with that would be different. The below Deloitte interpretation of Rev Rul 2004-55 explains a variation on the theme which should not be applicable and for which I suggest legal advice. The EBS explanation might be easier to follow. Note that the coverage in the Rev Rul is through a group policy.

http://benefitslink.com/articles/washbull040614.html#.VIuG1aEo7Vg

http://www.ebs-md.com/2012/07/30/disability-benefits-are-they-taxable/

http://www.ameriprise.com/budgeting-investing/tax-center/tax-planning-tax-strategies/taxation-of-disability-insurance.asp

[jpod]

I was merely pointing out that 2004-55 provies a blueprint for how this can be done, but obviously you must be able to fit within the blueprint. Also, i don't know that the ACA prohibitions apply to disability insurance.