We have health insurance coverage for our employees. We covers the first $1,000 of the policy for the employee and any premium above that amount, is paid out of pocket by the employee. Are the premiums paid on behalf of the employee taxable?

ANSWER

The BIDaWIZ Team's Answer:

Please reference Revenue Ruling 61-146. This ruling holds that if an employer reimburses an employee's substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee's gross income under Code Section 106. This exclusion also applies if the employer pays the premiums directly to the insurance company. An employer payment plan, as the term is used in this Technical Release, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage. Individual employers may establish payroll practices of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if the standards of the DOL's regulation at 29 C.F.R. Section 2510.3-1(j) are met.