Payroll-Health Insurance Benefit Q

[Hoosier]

I have a client for whom I prepare payroll. He wants to begin paying his employees an additional amount on each paycheck for health insurance. He wants the amount on the paystub to be designated 'health insurance benefit'. He says that it will be the responsibility of the employee to actually purchase the health insurance. He wants the health benefit to be a pre-tax benefit.

I don't know that I have ever encountered anything quite like this. The client is adamant that this can be done - he 'knows someone else who is doing it'. I personally don't see how the employer can add pre-tax or non-taxable dollars to the employee's check that the employee actually receives in cash.

Any suggestions, thoughts, advice...

[BHoffman]

Hi Hoosier - check out "Cafeteria 125 plans" .

[Burke]

I have some real heartburn with this one, same as you. It would appear to me that to qualify for the tax-free benefit (whether under a 125 plan or not), the premiums would have to be paid by the business directly to the health insurance company for the benefit of the employee. Now, I am wondering if payments to an HSA would have to meet the same requirement. Any payment of cash directly to the employee, or to another party for the employee's benefit which would not qualify under the specific allowance for health benefits or other tax-free items listed in the IRC would be deemed income subject to FWT, FICA & SWT, in my opinion.