Employer Or Employee Paid Medical Benefits?

[austin3515]

Company give a $250/month allowance to its employees. If employees benefit premiums come to $300 per month, there is a $50 deduction from their wages. If their benefits come out to $50 a month, they get $200 "bonused" to them as income.

1) I am pretty comfortable that the cash bonus is a taxable fringe benefit (although I know not everyone will agree, perhaps).

2) I am much less comfortable with the following question: If the employee spends the $250 per month, is the $250 considered wages for purposes of 415 comp OR is it employer paid medical benefits which would NOT be comp.?

[Bill Presson]

Is this done through a formal cafeteria plan or any other document?

[austin3515]

Cafeteria Plan. You're going to tell me the documents should make it clear?

[Bill Presson]

Cafeteria Plan. You're going to tell me the documents should make it clear?

Kind of, but I'm just thinking out loud. In operation, I don't see the employer contribution to the plan being compensation. It's obviously not subject to federal or state taxes and, in this case not subject to FICA or medicare.

So, my vote is not, it's not compensation, while the $200 bonus is AND the $50 additional spend on the premium is if the election in compensation definition include Section 125 comp.

[QDROphile]

The whole point of the cafeteria plan is to provide a choice of cash or notaxable benefits. If the choice is cash ($200 or $50, or $250), then the cash is w-2 income. If the choice is benefits, then the nontaxable benefits are .... nontaxable (not included in income). "Choice" can occur by default -- the premiums are what the premiums are. If the employee gets the medical benefit and the residual cash, the employee has chosen the amount of cash.

If the plan talks about "bonus" for amounts delivered in cash to the extent not applied to pay premium, the drafter of the plan is incompetent.