Affordable Care Act Ins Prem Refunds Count as Plan Compensation?

[cheersmate]

When an employer's group medical plan does not utilize at least 80% of the premiums for healthcare in a given year, the insurance company must provide a "refund" to the employer. This "refund" is then allocated to those employees who paid insurance premiums, and it is reported as taxable income on W2.

Question: Is this "refund" received by the employee included in plan compensation the year the refund is received? The particular plan uses 415 Comp excluding reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation (other than deferrals specified in k. above) and welfare benefits. 

thank you

[cheersmate]

Let me clarify the "refund"

In 2017 Employees paid their share of Healthcare Ins premiums via 125 plan (pretax withholding). For Plan purposes in 2017; for Plan purposes the Gross Compensation was not reduced bc 125, 401k  type of pretax withholding amounts are included in Plan Comp

In 2018 BCBS refunded $X to the employer (because utilization was less than 80%, Affordable HC rules), and $X is then allocated to those employees who paid 2017 premiums. It is taxable income and was reported on W2.  It is this "refund" I am questioning.  Should it be recognized for 2018 Plan Comp (see above for plan details). It seems to me it included -- my hesitation is whether it is a "fringe" and if so, then by plan definition it is excluded...

thank you

[CuseFan]

So this was initially a 125 deferral that counted as compensation once already, in 2017, but was refunded as taxable income in 2018 because of a test failure? I think you have to exclude, yes on the basis of a fringe, but also because you'd otherwise be including the same amount as compensation for two years.

[cheersmate]

13 minutes ago, CuseFan said:

So this was initially a 125 deferral that counted as compensation once already, in 2017, but was refunded as taxable income in 2018 because of a test failure? I think you have to exclude, yes on the basis of a fringe, but also because you'd otherwise be including the same amount as compensation for two years.

Both points you state are exactly my thoughts. But I believe the employer can only exclude it from 2018 plan comp purposes IF it qualifies as a "fringe benefit".

The refund is not because of a test failure, however - it was on account of the fact that BCBS did not expend at least 80% of the premiums paid for actual health care costs... under affordable care act, when this occurs in a year, the insurer must refund a certain amount of premiums paid back to the employer (to be reallocated to each employee covered, taxable income). Based on this, does your answer still stand?

I am wondering if this has happened in the past and it went unnoticed, undisclosed to me. It came up this year due to conflicts in weekly payroll accumulations for the year v. W2 figures.

[CuseFan]

Yes, I would still say it is a fringe benefit and exclude on that basis.