While I've done returns for small employers before, I've never had one that actually 'reimburses' the employee for a portion of their health insurance premiums before. I say 'reimburses' in quotes because it is meant to be a reimbursement, but they actually send the check for a portion of the premium directly to the insurance company. They also just started doing this last year. My question is - is this taxable to the employee? Exactly how should it be handled on the W2?
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Bizarre Arrangement
If I'm reading your post very late at night, this sounds like an unusual and counterproductive arrangement. "Normal" employers furnish health insurance for their employees and it is the employees that reimburse the company for a portion of the premium.
There is no additional taxation under the "normal" arrangement, and the employee can actually receive a deduction under ยง125 for their reimbursement. -
Always cite your source for support to defend your opinionComment
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Sole Proprietorship, Partnership, S-corporation, or C-corporation?
How many employees are there (including the owner if it is a corporation)?
Is this offered to all employees?
How many employees are actually being reimbursed?
Is the reimbursed employee(s) a Partner in the Partnership or a shareholder in the corporation?Comment
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This is actually a church with 1 full-time employee - the pastor and 2 part-time employees. The only person with health insurance is the pastor. Because the church isn't required to furnish health insurance, they offered to reimburse the pastor a portion of his cost. However, the way they are 'reimbursing' him is by sending a check directly to the insurance company for a portion of the premium and the pastor sends a check for the other portion. It's actually my new church (we've only been there about 6 months) and they asked me to take over as treasurer because the previous treasurer wanted to step down. She handed everything to me one day and then went for surgery the next day. I figured it would be pretty straight forward until I saw the paperwork for the pastor's compensation package. Isn't there some issue with an excise tax for certain employers who reimburse employees for health insurance if they don't meet certain requirements? And I'm just not sure if this is taxable to the pastor and whether this arrangement is even proper.Comment
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Thank you! Yes, that helps a lot. It confirmed my suspicion that this wasn't quite acceptable and gave me more direction for further information. I spent an hour on the IRS website trying to find an answer, so I appreciate your help!Comment
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It is allowable, and is not taxable to the employee.
If there was more than one full-time employee, then things get much more complicated.
Yes, as a Self Insured Plan, there is the PCORI fee of $2 - $3 (Part 2 of Form 720, #133).
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I agree, this is OK as long as there is only 1 employee in the plan, and only one that qualifies to be in the plan. If more than one, you must have a more formal arrangement like an HSA.Comment
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