Insurance Premium Reimbursement

[Jesse]

Clients employer has a policy that entitles the employee to a premium reimbursement if they are married and the spouse does not elect the insurance coverage.

Client and spouse sign a form opting out of the coverage for the calendar year 01/01/06-12/31/06 and in January of 2007 they received a check for $1248 "spousal premium reimbursement".

Is this taxable income to the employee?

[thomtax]

At first glance, this would appear to be a lowering of health insurance premiums. If this is the case, if they are itemizing, it would need to be deducted from the amount of deduction on Schedule A, if the total amount was used for a deduction. If taking the standard deduction, unless the company reported it on W2 or 1099, I would not think it needs any accounting for.

LT

[Jesse]

If the employee opted to take the health insurance for the spouse a small portion of the premium would be deducted from their pay Pre-tax, but this is incentive to save the employer money. It is not included in the W-2 wages and a seperate check is issued.

This is a new client and the previous preparer, who since passed away, put it on line 21 other income. I hate to include it in income just because the other preparer did.

[Jesse]

Bump back to top

[veritas]

Cash received is

wages and should be included on W2.

[thomtax]

Cite

Can you give a cite, or anything, to show how you are reaching this decision? I can understand where you are coming from and would agree, if they were just getting money to purchase insurance. However, I keep coming back to the thought that they are just getting a better insurance rate by not covering as many people.

As usual, I reserve the right to be proven wrong.:-)

LT

[veritas]

If it was a cafeteria plan

and the employee chose to receive cash rather than a tax free benefit it would be taxable.

[Jesse]

I'm still in a dilema.

It is not a cafeteria plan. It is for the employers benefit by keeping their costs down, the employer pays to the employee much less than what it would cost to inusure the employee's spouse.

The spouse has insurance thru his own employer so it is a win-win situation. Would it be a taxable employee benefit then?

I would think it should be included in the W-2 income, however it is not. Is it not because the employer is reporting it wrong or because it is not taxable income to the employee?

[Jesse]

Bump back to page 1

Last time - I promise. I need to finish the return in the morning and I'm still not sure if I need to include this in income.

[veritas]

I can't see

where the renumeration can be considered anything but wages. I have to go with, since there is no provision that says it is a tax free benefit, it must be a taxable benefit.

[Jesse]

Here it is 2011........

my how time flies.......I'm still including this reimbursement on line 21 - taxable income as I have found no exception but I was just wondering if anyone else has happened to encounter this situation. If so, how do you treat the reimbursement or do you have any information to confirm or deny whether the income is taxable?

[FEDUKE404]

Likely taxable income

my how time flies.......I'm still including this reimbursement on line 21 - taxable income as I have found no exception but I was just wondering if anyone else has happened to encounter this situation. If so, how do you treat the reimbursement or do you have any information to confirm or deny whether the income is taxable?

First time I recall seeing this thread (I must have been busy last April ).

If the facts are truly that the employer is giving the employee additional funds because the employer does NOT have to pay those funds, or something close thereto, then I agree it is simply taxable income. The employer is perhaps "sharing" the savings.

OTOH, if the dollar amount mentioned is somehow a rebate/reduction of medical premiums (in your own words it is a "premium reimbursement"), especially in a pre-tax scenario for the premiums, then the situation would be entirely different. Most employee medical insurance premiums are now pre-tax, so you might even possibly make a case it is a push IF the employee did not use medical deductions on Schedule A.

My question would be why such "income" is not included in the W2? Are you absolutely positive the payment is not lurking somewhere within the W2 wages??

FWIW: This is a scenario I do not recall encountering either!


FE

[Snaggletooth]

Not Income

I'm amazed at how people are trapped into thinking that proceeds from any source are taxable.

This is a reduction of an expense. If it is part of the s.125 plan at work, the responsibility for recapturing this as wages is on the employer. In fact, the employer may have already added the money back onto the W-2, and there's no guarantee that you could know this just by looking at it.

If it's not associated with a s.125 plan, the only effect would be to reduce deductible medical expenses, but only if the client exceeded 7.5% AGI with medical expenses. If he didn't exceed this threshold, then it is not an event to be reported at all.

[Gary2]

I'm amazed at how people are trapped into thinking that proceeds from any source are taxable.

This is a reduction of an expense. If it is part of the s.125 plan at work, the responsibility for recapturing this as wages is on the employer. In fact, the employer may have already added the money back onto the W-2, and there's no guarantee that you could know this just by looking at it.

If it's not associated with a s.125 plan, the only effect would be to reduce deductible medical expenses, but only if the client exceeded 7.5% AGI with medical expenses. If he didn't exceed this threshold, then it is not an event to be reported at all.

Doesn't this just reduce to "Of course it's taxable, but it's the employer's responsible to ensure that it's been properly presented on the W-2."?

[joanmcq]

I had this situation twice personally, where I got a benefit because I did not take insurance, but was on my husband's insurance. It was included in taxable wages.