SE tax on medical reimbursement?

[dyne]

Generally medical reimbursement from a former employee to a retiree is NOT taxable
if the medical expense is VERIFIED. However if the medical expense is NOT verified or
if the reimbursement is an arbitrary amount unrelated to any medical expense, THEN
the reimbursement should be entered in item 3 of a form 1099-MISC and IS taxable.
Question: Is such a taxable amount reported on form 1099-MISC subject to
self-employment tax assuming that the retiree provides NO services to the former employer?
I found an IRS ruling that indicates that SE tax IS due but that does not make sense to
me. The CPA of that particular former employer advised that SE tax is NOT due? Does
anyone know the answer?

[Mike Mac]

I've got an elderly client with the exact scenario. I picked him up just this year. I was puzzled why he got the 1009-Misc with the money listed in box 3. I ended up putting the amount on line 21 of the 1040 and not paying SE tax on it. I just used logic to do that so I know that is a dangerous step in this business. Will be interested to see other responses.

[Burke]

I found an IRS ruling that indicates that SE tax IS due but that does not make sense to
me. The CPA of that particular former employer advised that SE tax is NOT due? Does
anyone know the answer?

Where did you find this ruling? Any cite? It is incomprehensible to me that such payments would be subject to SE tax. Generally, any such item in Box 3 is not SE income. But often companies do these incorrectly as any of us can attest. However, why would a medical reimbursement to a retiree be reported at all? People can retire and still retain their health coverage. I have never seen a 1099 on this sort of payment.

[dyne]

My understanding is that his medical reimbursement is NOT verified or is an arbitrary
amount unrelated to his medical expenses. In such cases, it IS taxable. I found I believe what
was a Revenue Ruling which said that such income which was reported on a form 1099-MISC
WAS subject to self-employment tax. Now I cannot find this Revenue Ruling again.

[Mike Mac]

Thinking back, my new retired client told me that he got 1099-Misc because his former employer was paying for his health insurance. I did not ask him if the former employer paid a check to him directly with the intent of him paying the insurance or if the company paid the health insurance company directly. That might be the difference. I'll ask him next year.