Compensation and health benefits for life due to an executive agreement?

[Michele]

Thanks again for your expertise. Happy Holidays to you and your family.

[kathyc2]

Hi kathyc2/Rapid Robert- I appreciate the time you took in responding to my question. I never encountered this and was a little lost. I never really thought about it as a severance pay and seemed like 1099 was the logically place. Just to confirm the life time health benefits will also be reported on the W2 subject to tax? Thank you Michele

I don't see how it could be anything other than W2 income. He is receiving money and he can choose to use it for future health costs or use it to spend on anything else.

Remember that SS wages start over on 1.1.24, so if he has met SS wage limits, the employer will want to make sure payment is completed in 2023 to lower matching costs.

[Michele]

Hi kathyc2/Rapid Robert- I appreciate the time you took in responding to my question. I never encountered this and was a little lost. I never really thought about it as a severance pay and seemed like 1099 was the logically place. Just to confirm the life time health benefits will also be reported on the W2 subject to tax? Thank you Michele

[Rapid Robert]

"box 6 for medical benefits"

I agree with Kathyc2, but leaving that aside, even if 1099-MISC was appropriate, that is not what Box 6 is for, read the instructions.

[kathyc2]

Why do you think it would be on a 1099-Misc? Severance pay is reported on W2, subject to FICA tax. What language in the agreement has led you to believe that it's not severance pay?

[Michele]

I have a client that has an employee retiring on 12/31/23. Per an Executive agreement he will receive compensation and health benefits for life. Due to the uncertainty of the company he has chosen to be paid based on a life expectancy formula so there will be a one time pay out for both. My thoughts are it would be reported on a 1099 Misc - Box 3 for compensation and box 6 for medical benefits. Is this correct or would it be handled a different way?