Deemed 125 Compensation?

[Briandfox]

I am hair pulling on deemed 125 Compensation.

The document provider we used for EGTRRA included deemed 125 Compensation by default in the flush document. However, the PPA restatement now offers a choice as to whether or not deemed 125 Compensation should be included or excluded.

Does anyone know what this even is?

How it is quantified?

How is it something that would otherwise ever be excluded from Compensation if it is a benefit that is provided to employees in the ordinary course of their employment, and even if it was included wouldn't it be summarily excluded if we excluded taxable fringe benefits?

Very confused.

[Belgarath]

Take a look at Revenue Ruling 2002-27. Deemed 125 compensation has to do with when an employer gives an employee a choice of cash if the employee opts out of health care coverage due to having other coverage and the employer requires proof of such other coverage.

I've never actually seen this come up as an issue, and someone once warned me that I'd find I wasted my time by even looking at this issue....

[Briandfox]

I read the Revenue Ruling, but I still don't know what it is because it talks about the nature of the policy itself, but I still have no clue how this is even quantified and reported.

Say for example, this comes up, what is it that is even included? Also since the Rev-Proc said it's not eligible for pre-tax treatment does an employee even pay the premium on such policy? If so isn't it from post-tax dollars that were otherwise part of W-2?

[Belgarath]

If you can get access to the ERISA Outline Book, Sal has a good write-up about it, in far more detail than would ever interest me unless I were absolutely forced to look it up!

[Briandfox]

I found some stuff on this, what is scary is that this seems to be a non-taxable fringe benefit. As a result a plan sponsor would have to throw the value of it back in in determining plan compensation (guessing the premium payments).

I doubt anyone would ever actually do that because it isn't reported anywhere.