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I have come across a situation where two employees are paying their own health insurance through payroll deduction and a third employee is actually getting 100% reimbursed for his premiums on a personal plan. Is any of the reimbursed premiums taxable? There is no written policy.

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Author: rtfabricationllc: Add as a Colleague
Posted: 09/29/2009  9:01:51 AM EDT
Tags: insurance | taxable reimbursement

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View ProfileDawn Boyer: Add as a ColleagueAdd as a Colleague
09/29/2009 11:41:20 AM EDT

This can be a serious problem - tax-wise, as well as equity based for EEOC fair treatment. If you don't have an in-house CPA payroll specialist, I'd highly advise getting hiring an employment tax legal advisor to provide an analysis of the situation, and 1) assure that the payroll taxes and reimbursements are legal, and 2) find out if there is any 'unfairness' created as a result of reimbursing the third employee 100% for their premiums on a personal plan. There are methods of doing this legally, but you haven't provided enough details to make a firm determination. For example: 1) If the two employees who are paying for their own health insurance via a company plan are paying a pro-rated amount (ex: 25% of the premium, while company pays 75%) they are most likely to be paying their portion with pre-tax dollars. If the third employee pays for their private health insurance plan (ex: COBRA) with 100% of the plan coming from his/her paycheck, they are actually paying for their plan with post-tax dollars. This may actually create an unfairness for the third employee. 2) Another question to ask - did the third employee 'miss the enrollment' period where they could have signed up for a health insurance plan, and this is the methodology the company uses to ensure the employee has a health plan while the open enrollment period for the next year's benefit plan rolls around? 3) And, the next question is, how is the company documenting the third employee's 'extra pay'? Is it documented as 'extra pay for health insurance premiums' or is does the pay stub simply not pay differential? It's a sticky matter, and once you find the answers, you should document them (including any tax or legal findings) to the third employee's personnel file for auditing purposes if the company's accounting auditors come in and start asking questions. Hope this provides some enlightenment? Dawn Boyer

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