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Taxable benefits?
Benefits & Compensation
Taxable benefits?
Exchange ideas about health plans, retirement, work/life benefits, and employee assistance.
We have a new hire - position funded by past employer - they are going to pay all health & dental premiums for coverag of ee & spouse. At this time we pay a set amount for what ever level of h
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Forums » Topic Forums » Benefits & Compensation » Taxable benefits?
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Taxable benefits?
posted at 5/10/2011 10:14 AM EDT
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Posts: 40
First: 5/18/2000 Last: 5/11/2011 |
We have a new hire - position funded by past employer - they are going to pay all health & dental premiums for coverag of ee & spouse. At this time we pay a set amount for what ever level of health insurance coverage (ee only, family, etc) the ee choses. Not taxable to ee.
Dental is optional, ee's pay if they chose to enroll. If total premiums are paid by outside company, what, if any portion is taxable income to new hire? |
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Taxable benefits?
posted at 5/10/2011 10:34 AM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
What exactly do you mean by "position funded by former employer"?
To determine if items are taxable it will depend on exactly how does this employee elect and pay for their health insurance. If the employee election is made and billed to the employee in the same fashion as all your other employees then you would have the same tax impact, if any, as you would on your current employees. The fact that the "employer" portion is paid to the company by a third party, does not change this. The same would be true if you paid his/her salary and the salary was funded back to you by a third party. The salary would still be taxable in the same fashion as it is for all your other employees. |
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Taxable benefits?
posted at 5/11/2011 10:55 AM EDT
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Posts: 40
First: 5/18/2000 Last: 5/11/2011 |
I'll try to make this understandable. She will be insuring her and spouse. Total premium for both coverages will be paid by third party to us. At this time we pay only a set portion of each ee's premium, rest of premium is paid by ee.
For some reason I keep thinking that the excess premium (for spouse and the portion she would have to pay of her premium) the third party pays us will be a taxable benefit to her. Am I wrong? |
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Taxable benefits?
posted at 5/11/2011 11:35 AM EDT
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
I would have you read IRS Publication 15B page 7 ...I suspect it is nontaxable UNLESS she is possibly a "highly compensated employee", you plan is under Section 125 and you fail nondiscrimination tests.
In essence you are just agreeing to pay a higher amount (100%) of the premium for her. I would make sure that you can class her out like this but I suspect that it is not a problem unless there are others in her situation (paid for by someone else but working for you) who would fall into the same classification who are NOT 100% paid. |
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Taxable benefits?
posted at 5/11/2011 11:40 AM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
1." She will be insuring her and spouse."
On your regular plan like all your regular employees? In other words is she making her elections on your forms and submitting them to you like all your other employees do? I hope she is. 2. "Total premium for both coverages will be paid by third party to us." All of this money is going straight to your company and not the employee so no tax impact for this. 3. "At this time we pay only a set portion of each ee's premium, rest of premium is paid by ee. So will this employee be paying the rest of the premiums like all your other employees or is this where the difference is. Namely you will not charge her for anything? If you treat her like all other employees then there is no impact. If you treat her differently at the employee level there is a tax impact and you could have an ERISA violation for treating her differently. 4. "For some reason I keep thinking that the excess premium (for spouse and the portion she would have to pay of her premium) the third party pays us will be a taxable benefit to her. Am I wrong?" Yes it would be taxable if you pay this money directly to her or do not charge her for the cost like you do the other staff. If this is your intention, and assuming you do not wish to violate ERISA what you will need to do is: 1. Charge her for the employee premiums like you do any other employee. 2. Add a miscellenous amount to her income each pay period equal to the premiums she is paying you. Understand that she will have a net cost because of the taxes she will incur when you add this to her income. Hope this is clearer.......*U* |
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