Medical Loss Ratio Rebates

[ruthc]

I was told I would be getting a check for $39 from my prior employer (gone since 4/11-retired). I am on COBRA and have been paying by check since April. I was told I would be getting an employee check since I originally paid thru payroll for the insurance. I said that it was only pre-tax for 4 months. I really think it's crazy to set me up as an employee for this $39. Has anyone received a rebate for your insurance? This regulation was issued in 2010 for years 2011 forward. So 2012 is the 1st yr for the rebate which has to be sent to the employer from the insurance company by the end of June or July.
Thanks for any input!!!

[OtisMozzetti]

I was told I would be getting a check for $39 from my prior employer (gone since 4/11-retired). I am on COBRA and have been paying by check since April. I was told I would be getting an employee check since I originally paid thru payroll for the insurance. I said that it was only pre-tax for 4 months. I really think it's crazy to set me up as an employee for this $39. Has anyone received a rebate for your insurance? This regulation was issued in 2010 for years 2011 forward. So 2012 is the 1st yr for the rebate which has to be sent to the employer from the insurance company by the end of June or July.
Thanks for any input!!!

According to what you say, you are supposedly to be getting a rebate of $39 in pre-tax insurance premium that was paid earlier via your employer. I would think that if you are getting an adjustment in pre-tax income, you and your employer would be in line to pay withholding and payroll taxes on the $39 amount of the adjustment.

[S T]

This is a really good post - Just had a small biz client that received $800 check with 5 pages of why and wherefore's from their Group Insurance Med Carrier

The small biz client is a 50% employee contribution and 50% employer contribution. We are reviewing all of the 2011 Records to see how to make the refund back to the Employee for their 2011 Contribution Pretax- Sect 125 - I understand that - I just don't know how to reflect. for payroll purposes

So Question - how do we report the refund for a Year 2011 Sect 125 - pre-tax refund that will be issued in 2012?

Do we reduce the Sect 125 deduction on 2012 - please don't tell me Amended W-2 forms, etc for 2011 (as it is being refunded in 2012)

I am still researching, does anyone have an answer on this for payroll and the refund?

Sandy

[ruthc]

Reporting It

I was told the rebate would be going thru payroll, even though I am not working there this year. So I will get a W2 just for that rebate amount because it ends up being wages because it was orignally pre-tax, and basically is a reversal of that pre-tax amount via the rebate. I then went on COBRA for the rest of 2011 and will also get a separate check for that rebate. The point is the feds want the taxes now that were pre-taxed in 2011.
I can't imagine the headache for companies with many employees!!!

[DaveinTexas]

S Corp shareholder

I was told the rebate would be going thru payroll, even though I am not working there this year. So I will get a W2 just for that rebate amount because it ends up being wages because it was orignally pre-tax, and basically is a reversal of that pre-tax amount via the rebate. I then went on COBRA for the rest of 2011 and will also get a separate check for that rebate. The point is the feds want the taxes now that were pre-taxed in 2011.
I can't imagine the headache for companies with many employees!!!

I am a more than 2% shareholder in an S Corp and have a policy in my name, the S Corp pays the premium. I received a rebate because the policy is in my name. Will this be taxable income to me since I took a deduction for SEHI on my return?

Thanks all!

[ruthc]

Pay Taxes?

Yes, you will have to pay taxes on it.

[DaveinTexas]

That is my thought too

Yes, you will have to pay taxes on it.

I wonder if the insurance company will have some kind of reporting requirement, maybe a 1099 misc. I figure the insurance company will get a deduction. This is quite strange that the government can govern the revenues/profits of an insurance company.

I hope Big Brother doesn't one day regulate our fees we charge clients. Ah well, I suppose we will all be working for the government one day if King Obama is re-elected. Where are you folks planning to pick up your Solent green by the way?

[ruthc]

Reporting

My understanding is that the insurance company will not be reporting anything to you. Your employer (prior employer) will be via a W2 or 1099. If your original insurance premium was withheld from your pay and it was done pre-tax (which most are) then your rebate will be issued to you the same way. If you are not working there now the employer will still issue you a payroll check for the rebate and you will get a W2. They will have to set you up again in their payroll system. If you were not on the payroll but premiums were given to the prior employer (for example, on COBRA) your employer will send you a check for the rebate and they will issue a 1099 to you. I assume if under $600 you would not be sent a 1099, but you would have to still report it on your tax return. That is exactly what is happening with me. I will be getting a W2 and a 1099 at year end. My prior employer was not given a listing by employee to give the rebates. They have less than 50 employees. So they had to figure out each employee rebate amount. Other insurance companies may be giving their companies the listing. I am sure news will be forthcoming on this issue.

[DaveinTexas]

Just found this on the IRS website

It appears that individuals receiving a rebate may receive a 1099 MISC from the insurance company.

See the article here: http://www.irs.gov/newsroom/article/...256167,00.html

The troubling part is the insurance company must report the rebate on a 1099 MISC if: "Insurance Company knows that the rebate payments constitute taxable income to the individual policyholder or can determine how much of the payments constitute taxable income"

How are the insurance companies to determine this? Ah well, I know my responsibility is to report regardless if the insurance company does or not. The trouble is, if a taxpayer receives the 1099 erroneously (they don't deduct their premiums on their tax return), then they will be lost at tax time. This could prove to be a cluster, or an opportunity for us to gain some business.

[Burke]

It apparently will work just as it does for state income tax refunds. To the extent a tax benefit is obtained, the income is taxable. For most persons who itemize, that means a calculation to adjust for the 7.5% exclusion for medical expenses on Sche A. For SEHI, it would be fully taxable. Wonder if software will have a worksheet for this next year? There is no way insurance co's will know who itemized, etc. So I imagine they will issue 1099's for all subject to the reporting requirements.

[JohnH]

Perhaps IRS needs to develop a 1099-MISC/MAYBE