Reimbursing an employee for health insurance costs.

[Joe Priselac]

It is OK for the employees to deduct the premiums on their individual tax returns if they received a taxable reimbursement. I agree that it would be better for the employee to receive a tax-free reimbursement.

[Guest CLKeown]

Joe,

Thank you for your help!!! One last question if I may. Should the cummulative total of these reimbursements be reflected on the employee's W-2?

Carole

[This message has been edited by CLKeown (edited 04-28-2000).]

[Guest CLKeown]

I have an employee who lives outside of our insurance plan area. He works from his home in a state where we have no other employees.

It is actually less expensive to the company to reimburse him for the private health insurance policy he holds. The company's rates for the out-of-network employee would be considerably higher.

Can we/should we reimburse the expense to the employee on a non-tax basis? If he lived within a network area, he would have pre-tax deductions from his paycheck. Is this something we can do?

Carole

[Guest BENEFISH]

Yes you can reimburse employee for private insurance and exclude payment from income under IRC Section 106. Technically, the payment must be made under your company's health and accident "plan" which can simply be a statement describing your practice when an employee lives outside a group health plan service area. Also, you must require that the employee document that the payment received by the company was used to pay for health insurance. Be careful that you are not reimbursing the employee for premium already paid on a pre-tax basis under a spouse's group insurance/cafeteria plan.

[Joe Priselac]

You can reimburse the employee on a tax free basis for the cost of the health insurance. I can't remember exactly when, but I know this very subject has been discussed earlier. Just a few points to keep in mind: there is no going back and giving the employee tax free reimbursement for past premiums; tell the employee that he/she can not deduct the premiums on their individual tax return because double dipping is not allowed.

[Guest CLKeown]

In the past, the company has reimbursed employees for these types of insurance expenses as a taxable reimbursement. Which I don't think is the best way to do it.

Is it permissable to reimburse on a taxable basis? And if so, is it then permissible for the employee to deduct the premium costs from their taxes?

Carole

[Joe Priselac]

I assume you are referring to the taxable reimbursements. If so, then yes, they should be included on the W-2.

[Guest]

You are not doing the employee or the employer any favors by treating the reimbursement as taxable wages. The company (and the employee) pay FICA taxes on the reimbursement. Ouch! The employee will also not be able to deduct the premium payment in any event because it is a medical expense that isn't deductible unless it (and other medical expenses) exceed 7.5% of AGI. Not likely in most cases.

[Guest CLKeown]

Joe-

If we reimburse them on a non-taxable basis, does that reimbursement:

1- show up any where on the W-2? (I don't think it would, but I need to ask).

2- Would these payments be reflected on our form 5500?

Thanks,

Carole

[Joe Priselac]

Carole,

The answer to your first question is no. The answer to the second question is yes. I am making the assumption that you are using a Section 125 plan. I hope this is helpfull.

Joe Priselac