Making Work Pay and Health Reimbursement

[dyne]

My 79 year old retired client receives Health Reimbursement each year which should be exempt from income under section 160 however every year he is sent a 1099-R reporting this as being taxable. I called the former employer and they insisted that their CPA says that it is taxable AND subject to SE tax. He has not worked in years. I reseached the issue regarding this being subject to SE tax and concluded that it was, which is absurb but I have reported it that way for years. This client just received a refund larger than I calculated with an explanation later which said that he was entitled to the Making Work Pay Credit on this health insurance reimbursement. My tax software did not subject the amount to SE, which I believe to be correct.

[ChEAr$]

My 79 year old retired client receives Health Reimbursement each year which should be exempt from income under section 160 however every year he is sent a 1099-R reporting this as being taxable. I called the former employer and they insisted that their CPA says that it is taxable AND subject to SE tax. He has not worked in years. I reseached the issue regarding this being subject to SE tax and concluded that it was, which is absurb but I have reported it that way for years. This client just received a refund larger than I calculated with an explanation later which said that he was entitled to the Making Work Pay Credit on this health insurance reimbursement. My tax software did not subject the amount to SE, which I believe to be correct.

Wow. I've never heard of any amounts on a 1099R being subject to SE tax. After all, he did not work during the year and any reimbursements would be connected with his retirement, no?

This just don't seem right. Why did you (also) conclude that se tax applies?

[S T]

Similar

I have had a taxpayer that continued Group Life Insurance Benefits, a W-2 was issued with a code M and N in box 12 - which then gave me UT amount on Line 59 of the 1040 form - which was only the employees portion of the taxable benefit.

I haven't had one on "Health Insurance" subject to SE??

I did not think 1099R benefits would trigger the Make Work Pay Credit - I thought only for "wages/earned income"



Sandy

[Gary2]

I did not think 1099R benefits would trigger the Make Work Pay Credit - I thought only for "wages/earned income"

A 1099-R for disability is reported on line 7 and will trigger MWP.

[dyne]

When I first began preparing his tax returns ten or fifteen years ago I researched the issue and concluded that he must pay self-employment tax on this amount. And I believe the former employer told me that he must pay SE tax on it also.; This never seemed right to me. I think I will research this again. No, he performed NO services to receive this money and in fact I doubt that he has been near this former employer for ten years or more. Maybe I should take the position that it is not subject to SE tax. What do you think? I would appreciate comments. He is the ONLY client of mine which has this issue. I just realized that he received a 1099-MISC, NOT a 1099-R as I reported this on line 21 of page 1 of the return. Sorry about that. The problem with researching this issue is that it should NOT be taxable to start with but he receives a 1099-MISC EVERY year and if I do not report it, he will receive a notice from IRS. He told me that he would rather report it as income than risk a notice from IRS

[S T]

Disability

Thanks Gary for that info, Most all of my disability are showing up as 3rd party sick code J which I believe does not qualifiy.

Clarify if you will, would be an active employee, on disability still on the employer's active employee list, but if actually submitted retirement papers or early retirement disability retirement - it would not trigger the MWP -

For future reference -- Can you provide examples? What code to watch for on the 1099R and what paperwork do we need?

Sandy