Reimbursement of Medial Premiums - taxability

[MAMalody]

It is too early in the season for brain freeze, but it is here. I seem to remember reading that beginning in 2014 that if an employer reimburses your for medical insurance premiums that it is now taxable income. I remember it as an ACA change. I am unable to locate what I read. Can anybody set me straight, a link or whatever...or am I alll wet.

[Jack from Ohio]

Yes, the employer must add it to boxes 1, 3 & 5. It is no longer a 125 expense so it is taxable to the employee. This would have been the case even without the ACA. It is then up to the employee to take a deduction for the medical insurance premiums he is paying.

This will result in increased taxes for most of the employees that lose employer provided coverage and are reimbursed by the employer. Especially since the floor for medical deductions is now 10%.

ACA supporters do not like and usually refuse to talk about this increase in tax.

[Mr. Pencil]

If an employer reimburses your for medical insurance premiums that it is now taxable income

Although critics throw a cheap shot at this, it is actually one of Obamacare's major advantages--no annual or lifetime limits on coverage. Obviously HSA's and FSA's have annual limits, so they needed new compliance regs (which have already been issued). The rules vary depending on the kind of program and source of the policy.

So the critics are wrong. It is definitely still possible for an employer to pay for health insurance pre-tax. Plans just need to be updated for the broader coverage. Small businesses like our clients still have Section 105 Medical Reimbursement Plans as a really valuable option, and a good insurance advisor can still set up many other other arrangements.