1099 Misc Form

[S T]

T/P received 1099 Misc form, box 3 for $2700.

Retired teacher, the district is paying t/p according to the teachers contract over a 10 year period for offset medical insurance expenses. His retirement is from the State, but somehow the district was to provide lifetime medical, so they remit to the retiree, not to the State where the pension is issued from. State deducts medical from the retirement benefit.

Is this considered taxable income on line 21??

Sandy

[Chief]

Sandy

I would question the issuer of the 1099 misc. If issued correctly then it would go on line 21 as you probably already know.

[Snaggletoof]

Real Problem

Sandy, I've got a real problem with showing any income whatsoever from this situation.

The offset is for insurance premiums? If this was a public system, my guess is that the county (or district) at one time had medical care benefits for its retirees and is now baling out by offering insurance offsets. If the district paid direct medical care, the amounts would not be taxable to the retiree.

I know this forum is not for social issues of the day, but I think as preparers we've got to get a crystal-clear perception of governments and other entities who are baling out of their promised health-care responsibilities. This has been happening in private pension plans for years and years as no one could have foreseen the explosive growth in cost when these plans were negotiated.

I think unless we are told with a clear directive (Code or Regulation), we help the citizenry draw the line on the Federal government creating taxable income because providers and insurers want to bail out of the high medical cost.

We have seen various forms of this with regard to taxation over the years. On the Schedule A, I can remember when the Medical floor was 3%. Then they increased it to 5%, and now it is 7.5%. In other words the Federal govt was not going to do a thing to reduce runaway costs, but they were determined not to give up revenue because of it. And now instead of negotiating drug costs with the giant drug companies, they decide to institute Plan D to pay billions of dollars for medicare recipients, so they can subsidize drug prices even more.

Maybe I've digressed too much, but I can go on and on about this. In short, unless this so-called income from insurance offsets exceeds the cost of insurance or medical expenses, I would show no income.

[S T]

So how

Thanks Snags,

I concur and these amounts are exactly what you state they are, district bailing out of their commitment for life time medical coverage for retirees.

So how to report, line 21- $2700, with a second line 21 (2700)

Sandy

[Waldo]

medical insurance for retirees

I'm not sure if this situation is the same one that I had a few years ago. In NY when medicare kicks in for retirees from school systems, the districts who had promised to pay retirees medical insurance for life, remit the amount of medicare deducted from Social Security to the retirees. The financial person in our district decided to issue 1099's to the retirees. I researched through NATP. They supplied me with this reference: Code Sec.106; Reg 1.106-1 which says that the amounts are excludable from gross income. So, I put the amounts on a schedule C, noted the reg and subtracted the amount out.

[Snaggletoof]

No reporting

Sandy, I recommend no reporting at all, meaning no schedule "C" unless the amount appears in the box for "nonemployee compensation."

[S T]

One more question

Thanks Waldo for your post, very helpful with the cite.

Snags and Waldo, do you think I can show the $2,700 on line 21 for the computer matching, then on the second line reverse out the $2,700 showing the Reg # that Waldo cited?

I don't like not reporting and acknowledging the 1099 misc form! 1099 Misc form is Box "3".

Thoughts,

Sandy

[Acownt4it]

I have

a client that received the same thing.
I reported it on line 21 and then deducted it on Schedule A.

This particular client received a CP2000 letter in prior years (this was my first year preparing his taxes) for not reporting this income. So I do suggest you enter this 1099 into the return.

[S T]

Still here

Well if I enter on line 21 as other income, which I totally agree I should do, and then deduct on Schedule A, it makes a huge tax differnce, as more Social Security is subject to inclusion.

What are thoughts about entering on line 21 as a positive number and then deducting on line 21 as a negative number?? So I zero out, but I have reported and using the code section in the description which will carry to a detail sheet in my return.

Sandy

[George Boutwell]

Missing Facts

So the retiree gets $2,700 a year.

What does the retiree have to do in return? Submit receipts showing the money was actually spent on health insurance?

What if the retiree, 70, marries a younger woman, 35, with three kids, who is already paying $500 a month from a Section 125 plan for family coverage, and he gets to be included in that coverage, which is better than the cheesy Medicare supplement he had bought with the measly $225 monthly stipend?

Does he have to call up the district and tell them to stop sending the money, because he really doesn't need it anymore?

[Acownt4it]

Sandy

don't you go to bed? I thought I worked alot of hours, leaving the office at 12 or 1 am, but I see a post for you at 4:30 am. Wow, you are amazing.

[dyne]

There is no BETTER authority than IRS Regulations which says this is NOT
includable in income. The only way that I can imagine that it can be reported is to
report the gross income on line 21 with an offsetting deduction on line 21 and an explanation.
The employer should NOT have issued a form 1099 for this.

[S T]

Thank you

Noel, I do go to bed but rather late, 4:30 your time is about 1:30 or 2:30 here in Calif.

Dyne, thank you so much. No the district should not have issued the 1099 form, but we have to deal with it.

Sandy

[Acownt4it]

dyne

can you give a section code or cite the regulation that says this is not taxable income?
I would like to have it on file for my client that receives this type of 1099 each year.

[Earl]

offset of medical premiums

I have the same problem with several of my clients. They were employed by large corporation who at the time they retired promised lifetime medical insurance benefits. However, in the last year and a half the retirees are required to pay their own premiums for hospital insurance.

Company has contracted with a insurance company to reimburse the retirees for a portion of the cost of the health insurance. Retiree pays $159 per month for premium and insurace company sends retiree $105 per month as reimbursement. This contract is reviewed each year and a new insurance company picks up the contract and the new reimbursement amount is determined.

The insurance company issued a 1099R for the reimbursement amount. Would this amount be taxable.