Health Insurance

[S T]

Small Corporation. 3 Officers which are employees part time (all have full time wage jobs somewhere else with benefits) and 1 Full Time Employee.

Full Time Employee is requesting Health Benefits, but the other 3 do not need Health Coverage through this Corporation and the Corporation would not be able to obtain Group Insurance since there are less than 2 eligible employees.

I have heard that some small companies won't offer Health Coverage, but they will pay the employee a monthly amount to offset their Health Care cost on an individual policy.

Question, How is the monthly amount treated? Is it taxable wages to the employee?

Thanks,

Sandy

[Snaggletooth]

$3.01 per hour

Sandy, Federal contractors under Wage Determinations are required to furnish Health insurance or else provide cash payments to employees in an amount sufficient for them to purchase health insurance. Of course, the requirement does not extend to commercial (non-government) employers. Here are some "real world" observations.

1. If it is difficult for the company to find insurance for its full-time employee, it will be even more difficult for that employee to find insurance for himself.

2. The "cash payments" to the employees so they can "find" insurance for themselves and pay for it -- are added to the paycheck every week and are fully taxable. Taxable not only for income tax but also for FICA, FUTA, Medicare.

3. After accepting the cash payments, the employees are still not required to buy insurance with the proceeds. Many of them just stick the extra cash in their pocket and then show up at the emergency room as penniless indigent patients who "can't afford insurance."

4. The prevailing rate for the above-mentioned insurance cash payments is $3.01 per hour. This is appx 60% of the minimum wage. In 1993, the prevailing medical insurance cash payments was only $.99 per hour.

All manner of political discussions can be extracted from the foregoing, but I'll simply present you with the facts and let it go with that.

Regards, Snag

[S T]

Health Ins Reimbursement Taxable

Thanks Snags, I thought so, but was not sure.

This scenario is starting to surface in Calif, due to small business owners not being able to obtain Group Insurance or maybe not wanting to obtain health insurance, so the small business employers are trying a work around.

One in question, is stating that the employee, must furnish the evidence of health insurance, then they will reimburse that employee up to $200 of costs. So if the employee's premium is $175 they will only reimburse $175, but if the employee's premium is $225, they will only reimburse the $200.

The one I posted is a new query, so we have been tossing around this approach. Then the question arose as to whether or not it was taxable to the employee.

Sandy

[OldJack]

The business could make deductible, tax-free to the employee, payments by check direct to the insurance company even though the policy is an individual policy of the employee. That would meet the business requirement of payment to 3rd party insurance company as a part of the businesses insurance plan.

[Unregistered]

Another way is to set up a premium-only S125 plan (a POP). This is a cafeteria plan for health insurance premiums only, and can be defined to include reimbursement for personally-purchased health insurance under S106. There are boilerplates on the web for this, or have a CPA or law office that does this set it up for you. This way the employee also saves on payroll tax, and the corp does also. There are a bunch of rules you need to know to administer the POP, so best to leave it to someone who knows how to do this. The cost should be less than $1000 to set it up, because it is only a POP plan. -RJM

[S T]

Health Insurance

Thanks for the additional replies.

I don't think that this small employer would want to set up POP Plan and incur additional costs for 1 employee.


Question (Jack), Is it just that simple! Does the employer need to set up any special plan to be able to pay directly the Employee's medical insurance, or would it simply be enough just to include the decision in the Corporate Minutes

Sandy

[OldJack]

Thanks for the additional replies.

I don't think that this small employer would want to set up POP Plan and incur additional costs for 1 employee.


Question (Jack), Is it just that simple! Does the employer need to set up any special plan to be able to pay directly the Employee's medical insurance, or would it simply be enough just to include the decision in the Corporate Minutes

Sandy

Well... without looking... as I recall the IRS and/or code simply refer to the payments must be made to a 3rd party insurance company to not be taxable to the employee. I don't recall anything saying it has to be multi employee (group) coverage plans. I have had small clients with only a couple of employees pay the employees health insurance direct to the insurance company and I don't remember the IRS ever questioning the practice. As a matter of fact the so called health plan was usually a verbal employment agreement with the employee. You should research this before taking my word for it.

To the best of my knowledge there is no federal law or code that requires a corporation to have written minutes of officers, directors, or shareholders meetings. However, it is a good policy and it would allow you to claim the minutes as your plan. State law might require written meetings. Of course we are not talking about health reimbursement plans, rather only premium payments.

[Unregistered]

In the last few years, it is no longer required for a medical expense reimbursement plan (MERP) to be a written plan (tax case in about 2002 or so). That is section 105, and a health insurance premium reimbursement may be included in the plan. A 105 plan is non-discriminatory, so the same benefit must be offered to all non-owner employees.

But I believe a section 106 plan, which is the ordinary tax-free health insurance benefit, must still be a written plan. It can be one paragraph if you like, for example in the "office policies" or "employee guidelines". I think it's always safer to have the benefits policies in writing, so that you avoid conflicts with other employees. Also, a S106 plan IS discriminatory, so the benefit can be offered to or excluded from any particular class of employee.

-RJM