Recently the IRS released guidance on the practice of
employers reimbursing employees for health insurance premiums. It is not
surprising that the IRS ruled that pre-tax programs are no longer allowed (see this
guidance about transition
relief). What was surprising is that employers cannot reimbure employees for
health insurance premiums with post-tax dollars. Post tax dollars means exactly
that, the IRS has already gotten its share of taxes. Why would the IRS care where money is spent
after it has been taxed?
If you provide any money to an employee that is earmarked
for health insurance you may be asking, can employer designate any of it for
health insurance? The answer is buried deep within the bulletin. You can
provide a health insurance bonus with the intention that it is spent on
insurance. But in reality the employee can buy a first aid kit (almost health insurance)
or something really unhealthy like a meal of boneless buffalo wings, drinks and
carton of cigarettes. The point appears to be that you can give money to an
employee but you cannot require them to spend money on health insurance. For more
details on this guidance click here.
Arin J. Carmack
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