1099 MISC for Retired Health Benefits?

[Connie]

I have never had this before.... A 1099 MISC for a retired employee's health benefits. The taxpayer said the company is paying for his health insurance instead of offering him insurance coverage....

Anyone else had this before and did you just include it as Miscellaneous Income?

Thanks......

[Connie]

One more thing...

The previous employer used Box 6 to report this payment. I am not sure if that really makes a difference or not, but that did seem strange too. I usually see that Box used for the doctors I do accounting for as payments form various insurance companies etc.

[Connie]

Still wondering.....

I was just looking for some type of reply on this.... Still wondering about it. I am still hoping for your ideas on how to handle this....

[New York Enrolled Agent]

Unless there are more "unknown" facts, it seems those payments should not be taxable.

Consider Rev Ruling 62-199 - Personally, I don't think the two-thirds is significant. It could be any percentage.

The taxpayer is a retired employee of a company which maintains a health and accident plan to provide hospital, medical and surgical insurance coverage for its retired employees, as well as its active employees. Under the plan, the company pays two-thirds of the monthly premium costs of the coverage. The balance of the monthly premium costs are paid by the covered active and retired employees. The taxpayer continued coverage under the health and accident plan after retirement by authorizing the company retirement system to deduct his share of the insurance premium costs from his monthly retirement checks. The taxpayer does not own stock in the company.

Held, amounts paid by the company under the plan as its share of the cost of providing hospital, medical and surgical insurance coverage for the retired employee are excludable from his gross income for purposes of section 106 of the Internal Revenue Code of 1954.

[Connie]

But still a 1099....does that seem odd?

I guess what confused me is the 1099 MISC. It would seem that there would be no need to send one, if nothing was taxable. I agree with you, however, that it would seem to be a non taxable item....

Thank you for your time and expertise!

[Gene V]

I guess what confused me is the 1099 MISC. It would seem that there would be no need to send one, if nothing was taxable. I agree with you, however, that it would seem to be a non taxable item....

Thank you for your time and expertise!

I would be checking further into this. I retired from my company and they paid my health insurance until I was 65, looks like the company was paying his health insurance instead of covering him with there own health insurance.

Instruction for Recipients
Box 6. For individuals, report on Schedule C or C-EZ (Form 1040)

Instruction from Form 1099-MISC.

Box. 6. Enter payments of $600 or more made in the course of your trade or business to each physician or other supplier or provider of medical or health care services.

Generally, payments made under a flexible spending arrangement (as defined in section 106©(2) or a health reimbursement arrangement which is treated as employer-provided coverage under an accident or health plan for purposes of section 106 are exempt from the reporting requirements of section 6041.

[S T]

Another question

This post raises another issue that I had just received from a t/p.

Calif school district was sued over trying to eliminate lifetime benefits to its retired teachers. The retired teachers received a cash pay out. So would this payout be taxable, it is all for reimbursement of medical that the district did not pay under the teachers union agreement?

This particular client never met the medical deduction on Schedule A, so there has been no tax reduction due to Schedule A deductions.

then a similar question to the original post, a retiree that is offered lifetime medical insurance does NOT have to claim as income, and they can still deduct any extra that they might be billed for?? I have seen some that have SSA medicare premiums deducted, but then there is a reimbursement on the retirement. Haven't really paid too much attention as the medical again could not be deducted on the Schedule A, so no tax benefit.

For future note, in the case of meeting the 7.5% for medical deduction and the other Schedule A requirements, would you net the SSA deduction with what the retirement is providing?

I have not seen a 1099 for this issue.

Sandy

[S T]

More help needed

I have a similar situation, except the 1099 misc is box 3 for $2700.

Background, retired teachers in Calif school district, the district reneged on the teacher contract for providing lifetime medical, then later, gave all retired teachers an option of several plans to compensate for reimbursement of medical insurance.

The district did not carry the medical, however, the State from where the pension is being issued is deducting a medical insurance expense.

So the district pays the retired teacher a lump sum payment each year of $2,700 over a period of 10 years to offset some of the medical insurance costs. Seems like the district and the State are two separate entities.

Question, is this payment taxable each year? Does it fall under the above rev ruling that New York Enrolled Agent cited??

Thanks

Sandy

[Connie]

Still waiting....

I wish I could offer more assistance on this. I have the client getting something in writing as to why his former employer (due to retirement) issued the 1099. I am in hopes of getting something tomorrow. I will let you know if I find out something of use.

[S T]

More

Thanks Connie,

Well my client just won't be able to obtain anything from the School district, as they are "hostile" at the moment!

So maybe NY EA or Old Jack or some one else will jump in and provide both of us some guidance on this issue!

I am thinking because it is part of the contract and retirement package, should not be taxable, but then I don't know why they are issuing 1099 forms. Box 3 unlike yours in Box 6, is for damages, awards, etc.??

So I guess we will both wait one more day!

Sandy

[George Boutwell]

How does the previous employer know where the money is being spent? I have seen cases where the money is paid regardless of whether the retiree has insurance (not paid by spouse's employer) or how much it costs.

[jasdlm]

Connie - Are they paying your tp directly or paying the health insurance company?

jas

[Connie]

Good question

The taxpayer did mention that to me, but it is a good question for me to inquire about.... I will try to get that info also.

[Connie]

The reason....

I finally got a call back from the client and then an email from his wife. They inquired and the company has informed them that the 1099 is due to payment to him to pay for his insurance and they are treating the amount of payment as part of his pension payments. I guess that answers that one for me anyway.... Hope it will help someone else too.