Tag Archives: Taxes

PCORI Fee Deadline Approaches

June 20, 2018


The annual Patient Centered Outcomes Research Institute (PCORI) fee is due by July 31, 2018. The fee was created by the Affordable Care Act to help fund the nonprofit Patient-Centered Outcomes Research Institute which supports clinical effectiveness research. Typically only employers with self-funded health plans, including health reimbursement arrangements (HRAs), must calculate and pay the fee. Health insurance companies will pay the fee on behalf of employers with fully-insured health plans.

Plan sponsors will use IRS Form 720 (Quarterly Federal Excise Tax Return) to report the fee. The fee amount changes annually and is tied to the plan year. The amount due each year is calculated by multiplying the applicable fee by the average number of covered lives in the plan. Employers have several methods available to calculate the average number of covered lives including the actual count method, snapshot method and Form 5500 method. For plan years ending in January 2017 through September 2017, the fee will be $2.26. For plans ending in October 2017 through December 2017, the fee will be $2.39.

For more information on how to calculate and pay the PCORI fee, please contact your service team.

Continue reading...

2019 HSA Contribution Limits

May 14, 2018


The IRS announced inflation-adjusted Health Savings Account limits for 2019 in Revenue Procedure 2018-30. They also announced minimum annual deductible and maximum annual out-of-pocket thresholds for 2019.

* The IRS announced they would continue to allow the original limit to stand for the remainder of 2018 despite the mid year reduction to $6,850.


Continue reading...

IRS Extends Relief for Those Affected by 2018 Family HSA Contribution Maximum Change

April 26, 2018


In early March the IRS announced a change in the family HSA contribution maximum for 2018. As previously discussed, the Tax Cuts and Jobs Bill changed the way the IRS calculates benefit contribution maximums resulting in the 2018 family HSA contribution maximum changing from $6,900 to $6,850.

The IRS announced today that taxpayers with family coverage under a High Deductible Health Plan (HDHP) may continue to use the $6,900 limit for the rest of 2018. The IRS recognized the $50 reduction would “impose numerous unanticipated administrative and financial burdens” including the cost of adjusting cafeteria plan contributions for employers allow pre-tax HSA contributions.

This announcement is a little late for many who have taken steps to adjust their contributions. The new guidance provides ways for HSA holders to recoup those “mistaken distributions” (the $50 difference) without penalty. However, HSA custodians are not required to allow individuals to repay mistaken distributions. If an individual has received a distribution from an HSA of an excess contribution based on the $6,850 limit, they may repay the funds to the HSA. Those funds will not be includable in the individual’s gross income, will not be subject to the 20% excise tax on excess contributions and will not need to be reported on Form 1099-SA or Form 8889.

Those individuals who received a distribution from an HSA of an excess contribution based on the $6,850 limit but choose not to repay the distribution to the HSA will not be required to include the amount in gross income or pay the 20% excise tax if the distribution is received on or before the individual’s tax filing deadline (including extensions of time).

The tax treatment described above will not apply to distributions from an HSA that are attributable to employer contributions if the employer relies upon the $6,900 limit. Then, the distribution must either be used to pay qualified medical expense or it must be includible in the employee’s gross income and subject to the 20% excise tax. Employers should consult tax advisors with any concerns regarding this IRS’s guidance.

Continue reading...

IRS Lowers 2018 Family HSA Contribution Maximum

March 6, 2018


Late last year Congress passed the Tax Cuts and Jobs Bill into law. It contained a number of tax reforms including a change to the way the Internal Revenue Service (IRS) calculates cost of living increases. The IRS now has to calculate the increases using “Chained CPI.” The new method takes into account consumers switching to cheaper products which reduce the effect of inflation. As a result, Chained CPI results in lower cost of living increases than what we’ve previously seen.

These cost of living increases are used to calculate the HSA contribution maximums for the year. Due to the new calculation method, the IRS announced today the family HSA contribution maximum is reduced from $6,900 to $6,850. Health FSAs and other benefit limits are not impacted. The 2018 limits are as follows:

HSA/HDHP Limits 2018 2017 2016
HSA Contribution Limit (Self-Only) $3,450 $3,400 $3,350
HSA Contribution Limit (Family) $6,850 $6,750 $6,750
HSA Catch-up Contribution Limit (55+years) $1,000 $1,000 $1,000
HDHP Minimum Deductible (Self-Only) $1,350 $1,300 $1,300
HDHP Minimum Deductible (Family) $2,700 $2,600 $2,600
HDHP Maximum Out-of-Pocket (Self-Only) $6,650 $6,550 $6,550
HDHP Maximum Out-of-Pocket (Family) $13,300 $13,100 $13,100

Ultimately it is HSA holders’ responsibility to abide by the contribution maximums as they are individually owned accounts. Because it is so early in the year, most HSA holders likely haven’t contributed the maximum yet. If they have, they will need to speak to their tax advisors about a curative distribution, which can help avoid the 6% excise tax on excess contributions.

Employers should communicate the family HSA maximum contribution change to their employees, especially if they previously provided the old limit. HR departments will also need to check their payroll accounts and adjust any employee HSA contributions that would exceed the maximum.

In addition, limits for employer adoption assistance programs have changed. The maximum amount that can be excluded from an employee’s gross income for qualified adoption expenses dropped from $13,840 to $13,810 and the adjusted gross income threshold after which the adoption exclusion begins to phase out is lowered from $207,580 to $270,140.

Continue reading...

IRS Gives an Early Present to 1094/1095 Filers

December 22, 2017


Today the IRS announced in Notice 2018-06 they will be extending due dates and good faith filing relief to 2017’s 1094/1095 reporting requirement. Under the Affordable Care Act, Applicable Large Employers (ALEs) are required to complete Form 1095-C for each of their full-time employees. In addition, issuers of coverage must report on all those enrolled in their plans with Form 1095-B. The original deadline to provide a copy of these forms to individuals was January 31, 2018. The IRS extended the deadline to provide the 1095-C and 1095-B forms to March 2, 2018. However, employers will still need to send copies with the IRS by February 28, 2018 or by March 31, 2018 if filing electronically. In addition, the 30 day extension will not be available to the new March 2, 2018 deadline but it will still be available for the IRS filing deadlines by using Form 8809.

As we’ve previously mentioned, the IRS will not require tax filers to submit copies of their Form 1095-B or 1095-C with their tax returns. Instead, filers will certify health insurance coverage by checking certain boxes on their returns.

The notice also extended the good faith filing relief that was available last year. This means the IRS will not impose penalties on reporting entities if they can show they made a good-faith effort to comply with the information-reporting requirements. This relief applies to incorrect and incomplete information reported on the forms. No relief is available to employers who do not timely file the forms.


Continue reading...

IRS Employer Mandate Penalties

December 6, 2017


The IRS recently updated the Questions and Answers section of its website which addressed the employer shared responsibility requirements of the Affordable Care Act (ACA). These requirements are commonly referred to as the employer mandate.

Beginning in 2015, the ACA required employers to offer full-time employees health coverage or face two different potential penalties:

  1. No Coverage – $2,080 per full-time employee minus 30 full-time employees (in 2015, 80 FT employees could be excluded). This penalty applies if the employer fails to offer substantially all of its full-time employees and their dependent children minimum essential coverage (MEC) and at least one full-time employee purchases subsidized Marketplace coverage.
  2. No Minimum Value or Unaffordable Coverage – $3,120 for each full-time employee who receives a premium tax credit for Marketplace coverage. This penalty only applies if the employer offered the wrong type of coverage (it did not meet the Minimum Value or Affordability requirements) and that employee subsequently purchases subsidized coverage in the Marketplace.

The exposure under the “no coverage” penalty is significantly greater to most employers because the penalty is applied to all full-time employees less the first 30 (80 in 2015).  The “wrong type of coverage” penalty only applies to the individual full-time employee who is not offered Minimum Value/Affordable coverage, and who subsequently purchases subsidized coverage in the Marketplace.

Recently, the IRS announced that it would begin sending letters to employers notifying them of employer mandate penalties for 2015. The IRS expected to begin sending those letters in late 2017. The letters are the first step in the process for assessing the penalties. Each step in the process is outlined below.

  1. Issuance of the penalty letter, called Letter 226J. It will include two additional forms:
    • Form 14765 – A table that indicates all of the employer’s full-time employees who purchased subsidized coverage in the Marketplace.
    • Form 14764 – The employer response form. This allows employers to affirm or dispute the penalties being assessed. Employers have 30 days to respond to Letter 226J with this Form.
  2. If an employer submits Form 14764, they will receive a response Letter 227 from the IRS. There will be several versions of Letter 227 that will indicate whether the IRS plans to assess a penalty against the ALE.
  3. If the employer disagrees with the IRS response in Letter 227, it can follow the instructions provided in Letter 227 and Publication 5 to request a pre-assessment conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.
  4. If the employer fails to respond to Letter 226J or Letter 227, the IRS will automatically assess the applicable proposed penalty against the employer. The IRS will issue a notice and demand for payment (Notice CP 220J). That Notice will include a summary of the penalty, and will reflect payments made, credits applied, and the balance due, if any. The Notice will instruct the employer on the process to make a payment. Employers are not required to include the penalty on any tax returns or make any payments before receiving Notice CP 220J. Employers may have the ability to make payment installments, as described in Publication 594.

Employers need to keep an eye out for Letter 226J. It will likely be sent to the contact listed on the 2015 1094-C the ALE submitted in 2016.

 Letter 226J

The IRS has posted a full sample copy of Letter 226J online.

The first page will look like this:


The Proposed ESRP is the penalty amount the IRS calculated for the 2015 ACA employer mandate. The letter provides a description of both potential penalties and Forms 14765 and 14764, which will be included with the letter. The letter recommends that an ALE have their 2015 Forms 1094-C and 1095-Cs available, to use as a reference when reviewing the letter and accompanying forms.

The letter also provides further instructions:

An employer that agrees with the proposed penalty can indicate their agreement on Form 14764 and include payment (full or partial) when returning the form to the IRS. An employer that doesn’t pay the entire amount will receive a bill in the form of a notice and demand for payment.

An employer that does not agree with the proposed penalty must complete Form 14764 and include a signed statement to dispute all or a portion of the penalty. If corrections to the Employee PTC listing (Form 14765) are necessary, those changes must be identified in the signed statement.  Also, changes should directly be made on the Employee PTC listing by using the indicator codes one would use on Forms1094-C or 1095-C.  There is no requirement to file corrected statements (i.e., Forms 1094-C or 1095-C) with the IRS. Instead, those corrections should be noted in the signed statement and made on the PTC list.

Letter 226J will also include a table called the ESRP Summary Table that shows the months in which penalties apply and explains the penalty calculation:

Letter 226J provides a detailed explanation of each column in the summary table to help employers understand how the penalty amounts were calculated. It will include a number of references to IRS publications to aid in the employer in understanding the penalty determination.

Form 14765

Every Letter 226J should include Form 14765, a sample of which can be found online.

This form is called the Employee Premium Tax Credit Listing:

It will include all full-time employees who received a tax credit to purchase subsidized coverage in the Marketplace, whose 1095-C Form did not include a safe harbor code or any other relief code from the tax penalty.

The Letter 226J includes instructions on how to make changes to the Employee PTC listing:

The IRS reminds employers to ensure that their statement is signed and that the tax year and EIN are entered at the top of the form.

 Form 14764

Letter 226J should include Form 14764. A sample of the Form 14764 can be found here.

Employers should complete the ESRP Response Form (Form 14764) and indicate if they agree or disagree with all or part of the proposed penalty. The first part of the form includes the due date of the response. If an employer needs more time to respond, they may call the IRS to request additional time.  Employers should include the contact information and best times to reach an individual responsible for discussing the matter with the IRS.

If an employer disagrees with the penalty amount, they should include the following when returning the form to the IRS:

  • A signed statement explaining why the employer disagrees with all or a portion of the penalty.
  • Any additional documentation that supports the employer’s contention that penalties should not apply.
  • If an employer made corrections to the Employee PTC listing (Form 14765), include an explanation of the changes in the signed statement.

The Form also permits employers to pay all or a part of the proposed penalty. An employer can select “no payment”. An employer may also choose “partial payment” and the IRS will issue a demand for payment to the employer if there is an agreement that at least a portion of the penalty applies.

Finally, the form allows an employer to designate another authorized contact on page 2. This is optional. An employer may want to designate an additional contact if the primary contract is difficult to reach via phone.

Letter 227

At this point, the IRS has not released a sample of Letter 227. However, the Questions and Answers posted on the IRS website indicate that there will be at least five versions of Letter 227.  Letter 227 will be used as a response to an employer who disagrees with any penalty assessed.  It may also request more information that supports the employer’s position. The IRS, in Letter 227, may also disagree with the employer’s response and indicate that the IRS intends to levy the penalty.

Request for Conference

If the employer maintains the position that the penalty should not apply despite the IRS explanation in Letter 227, the employer can request a pre-assessment conference with the IRS Office of Appeals.

Letter 227 will include instructions for requesting a conference. The employer can also reference IRS Publication 5 for more details. The IRS Publication 5 can be found via this link.

Employers will have 30 days from the date of Letter 227 to request the conference with the Office of Appeals.

Concluding Thoughts

These penalty notices could not come at a worse time for most employers. Many are working through open enrollment issues, getting ready to issue W-2s, and 1095-Cs and preparing for the holidays.

It is critical that employers address this letter shortly after receiving it. Timing is tight.  Employers will have only 30 days to respond and may need that time to make specific arguments as to why a certain penalty amount may not apply.

It is also important to remember that a significant amount of transitional relief was available in 2015. It is not clear if the IRS will take this into consideration when proposing penalties.  However, employers can reference the transitional relief when challenging the penalty determination.

Be prepared to respond to IRS Letter 226J. The IRS did not provide any further details on when these letters would be mailed, other than late 2017.  Employers may want to make sure that they have access to their Forms 1094-C and 1095-C submitted to the IRS in 2016. These forms will be necessary when investigating any proposed penalties.





Continue reading...

2017 Tax Returns Require Filers to Certify Health Insurance

October 18, 2017


On October 13, 2017 the IRS announced that it will require tax filers to certify if they had health coverage for the year on their tax returns.  The IRS will not accept paper or electronic filings if the filer does not report full-year coverage, claim a coverage exemption or report a shared responsibility payment on the tax return.

Individuals with qualifying coverage for the entire year will check the “Full-year coverage” box on their federal income tax return. Those who are claiming a coverage exemption will file Form 8965 with their federal income tax return.  Those who owe a shared responsibility payment will report the payment on Form 1040 in the Other Taxes section and on the corresponding sections on Form 1040A and 1040EZ.

In previous years tax filers did not need to provide this certification despite the Individual Shared Responsibility Provision (aka, Individual Mandate) being in effect. The Individual Mandate requires individuals to have qualifying health care coverage (minimum essential coverage) for each month, qualify for an exemption or pay a penalty when filing their federal income tax return. Minimum essential coverage includes:

  • Most health coverage provided by your employer;
  • Health insurance purchased through the Marketplace;
  • Coverage under a government-sponsored program; and
  • Individual policies purchased from insurance companies.

Individuals have through Monday, April 16, 2018 to file their federal income taxes.

Continue reading...

Last Call for PCORI Fees

July 26, 2017


Self-funded medical plan sponsors must calculate and pay PCORI fees by July 31. Click here for details on which plans are subject to PCORI fees, how to calculate them and which IRS forms to use.

Continue reading...

PCORI Fees Due By July 31, 2017

June 6, 2017


As a reminder, the annual fee for the Patient Centered Outcomes Research Institute (PCORI) is due no later than July 31, 2017.  Self-funded medical plan sponsors are responsible for reporting and paying the using the Quarterly Federal Excise Tax Return from the IRS (Form 720, Part II line 133 (c) or (d) for the applicable plan year).  Detailed instructions on completion of Form 720 are available here.  (Fees for fully insured plans will be paid by the insurance carrier.)

In addition to major medical plans, HRAs and FSAs that do not qualify as excepted benefits are also subject to the fee. An HRA/FSA integrated with other medical coverage may only be treated as a single plan if both have the same plan year and plan sponsor.  An insured major medical plan and self-funded HRA (e.g., deductible reimbursement plan) would be considered separate plans, which would each be responsible for payment of the fee.  No payment will be due for the following types of plans:

  • Stand-alone dental and vision coverage
  • Life insurance
  • Disability and accident insurance
  • Health FSAs with only employee contributions (or employer contributions up to $500 annually)
  • Health savings accounts (HSAs)
  • Hospital indemnity or specified illness coverage
  • Employee assistance and wellness programs that do not provide significant medical care or treatment
  • Stop-loss coverage

The amount of the fee changes annually and is tied to plan year. For this year, the fee will be $2.17 per covered life for plan years beginning February 1-October 1 and $2.26 for November, December and January 1 plan years.  That fee amount should be multiplied by the average number of individuals covered under the Plan during the applicable plan year (e.g., employee/spouse coverage would be considered 2 covered lives), although HRA/FSA plans can assume one covered life for each enrolled employee (or subscriber).  Retirees and COBRA participants should also be included in the covered lives calculation.

The average number of covered lives on which the fee is based may be determined using one of the following methods:

  • Actual count method–enrollment numbers on each day of the plan year are totaled and divided by total number of days in that plan year;
  • Snapshot method—Enrollment counts are taken from one consistent date each quarter (within 3 days) and divided by the number of dates on which a count was made;
  • Snapshot factor method—Participant counts are taken from one consistent date each quarter (within 3 days) and separated into 2 categories–self-only coverage and other than single-only coverage. The number of participants with other than single-only coverage is multiplied by 2.35 and then that product is added to number of participants with single-only coverage. That total is then divided by the number of dates on which a count was made; or
  • Form 5500 method (for plans that have actually filed the Form 5500 by July 31, 2017)—sum of reported participants covered at beginning and end of plan year; or if plan has self-only coverage, that sum divided by 2.Any erroneous payments should be reported using Form 720-X. The IRS has stated that plan sponsors may not reduce the amount reported and paid based on an overpayment from a prior year.
  • Plan sponsors must choose one method to use for each entire plan year, however they are permitted to change methods from year to year.
Continue reading...

Individual Taxpayers No Longer Required to Answer Health Insurance Questions

February 17, 2017


Earlier this week, the IRS indicated it would no longer reject tax returns that failed to disclose information about the person’s health insurance coverage. This represents a significant change in policy.

Under the Affordable Care Act’s (ACA) “individual mandate,” every person is required to obtain health insurance or pay a penalty for failing to do so. IRS tax forms ask filers to certify that they had coverage for the tax year. The individual mandate took effect in 2014 and since then, the IRS has rejected tax returns that failed to answer the question about health insurance coverage. Under its new policy, the IRS will not reject these so-called “silent returns,” but may instead direct questions and correspondence from the IRS after the filing process is complete. The IRS will still determine and assess penalties for failing to have health insurance, as required under the ACA’s individual mandate.

The IRS indicated that it relied on President Trump’s executive order directing federal agencies to use their discretion to reduce the potential burden of the ACA. While the IRS’ decision does not impact any substantive ACA provision, it is the first federal agency to roll back administrative requirements used to ensure ACA compliance. Now that HHS Secretary Tom Price has been confirmed by the Senate, it is possible that we will see more administrative changes to ACA enforcement in the short-term.

Continue reading...

The Mystery of Line 22:

January 23, 2017


ALEs (Applicable Large Employers) are once again creating their 1094-Cs and 1095-Cs. However, Line 22 on Form 1094-C has tripped up many filers. Line 22 contains 4 boxes ALEs may check to indicate they are eligible for one or more types of reporting relief. ALEs are not required to use any of the boxes, but they may choose to if they fit the criteria. Below is a brief explanation of each reporting relief option.

Box A: Qualifying Offer Method

Self-funded plans are not eligible to use the Qualifying Offer Method.  A qualifying offer is an offer that has all of the following elements:

  • Offer provides minimum essential coverage and minimum value to one or more full-time employees for all calendar months during 2016 for which the employee was full-time;
  • Offer of minimum essential coverage to employee’s spouse and dependents; and
  • Affordability was calculated using the Federal Poverty Line safe harbor ($95.63/month in 2016).

ALEs who check this box may choose to provide a generic statement (instead of a Form 1095-C) to each employee who received a qualifying offer for all 12 months of the year. This is because receiving a qualifying offer makes the employee and their family ineligible for premium tax credits purchased on the exchange for the months they received the qualifying offer. Even if the ALE chooses to provide the alternative statement, it must still prepare and file a Form 1095-C to the IRS. This method does not significantly ease the reporting burden.

Box B: Reserved

This line is reserved because the former transition relief is no longer available. Do not use this box.

Box C: 4980H Transitional Relief

The 4908H Transition Relief relates to the Employer Mandate penalties. The subsection (a) penalty is when employers fail to offer minimum value coverage to 95% of their full-time employees. In 2016, the penalty was $2,160 X each full-time employee (minus 30). The subsection (b) penalty is when employers fail to offer affordable coverage to their full-time employees. In 2016, the (b) penalty was $3,240 per employee who received an exchange subsidy. All penalties are calculated on a monthly basis.

There are two types of 4980H transition relief but both require part of the 2015 plan year to fall within the 2016 calendar year. The two options are based on the number of full-time employees (including equivalents) during 2014’s calendar year.

  • If an employer averaged over 100 full-time employees on business days in 2014, and is subject to a subsection (a) penalty for any months in 2016 that fall within the 2015 plan year, the assessable penalty is calculated by reducing the ALE’s number of full-time employees by 80 (rather than 30).
  • ALEs who qualify under this would check box C on line 22 and mark relief code “B” under Part III, column (e) of the 1094-C for the applicable months
  • If the large employer averaged between 50-99 full-time employees on business days in 2014, and satisfies the following requirements, no Employer Mandate penalty will apply for any calendar month in 2016 that falls within 2015 plan year. In other words, ALEs with non-calendar year plans won’t be penalized for the months of the 2015 plan year that fall in 2016. An employer is eligible for this transition relief if it meets the following conditions:
  • Must have employed on average between 50-99 full-time employees (including equivalents) on business days during 2014.
  • During the period beginning on February 9, 2014 and ending on December 31, 2014, the ALE did not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition set forth above.
    • A reduction in workforce size or overall hours of service for bona fide business reasons is permitted.
  • During the period of February 9, 2014 through the last day of the 2015 plan year, the ALE does not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014.
  • ALEs who qualify under this would check box C on line 22 and mark relief code “A” under Part III, column (e) for the applicable months.

Box D: 98% Offer Method

To be eligible for the 98% offer method, the ALE must certify it offered affordable, minimum value health coverage to at least 98% of its employees for whom it is filing a Form 1095-C and offered minimum essential coverage to dependents. The 98% threshold must be met for all months of the calendar year (excluding any employees who were not employed or who were in a limited non-assessment period for that month).

If an ALE checks this box, they are not required to complete the full-time employee count on Part III, column (b) of Form 1094-C. However, the ALE must still file a Form 1095-C on behalf of each full-time employee.


ALEs should consult with the instructions for Forms 1094-C and 1095-C for additional details on how to complete Form 1094-C when using one of the Line 22 transitional relief options. While most employers are familiar with the process, be aware that the instructions and 1095-C offer codes (lines 14 and 16) have changed this year. Employers should start preparing the Forms early to meet the applicable deadlines.

Continue reading...

Employer “Gifts” Are Probably Taxable Income

December 9, 2016


Want to be a real downer at this year’s office party? Remind your co-workers that the holiday bonus they received – even if in the form of a gift card – is probably taxable income.

IRS Code Section 102(c) includes in gross income any gift given from an employer to an employee. Therefore, gifts from employers to employees are taxable, unless they are de minimis fringe benefits. Cocktail parties, group meals or property given with a low market value are examples of de minimis fringe benefits. So good news – you won’t be taxed on your company’s holiday party! There IS such a thing as a free lunch. At least in the tax code.

Cash and cash equivalents, however, are clearly taxable income. 26 C.F.R. 1.132-6(c). The reason is that it is easy to determine the value of cash or a gift card, so it’s easy to account for the additional taxable income, whereas it is significantly harder to determine the value of a bottle of wine or other property. If the employer traditionally gives employees a Christmas ham (which could be a de minimis fringe benefit) but decides to distribute gift cards to a grocery store instead, that gift card would be taxable income.

A newer spin on this employer conundrum is wellness incentives. The EEOC has issued new rules about providing wellness incentives to employees. Even before those rules were finalized, however, the IRS reminded employers that they “may not exclude from an employee’s gross income payments of cash rewards for participating in a wellness program.” Chief Counsel Memorandum, 4/14/16 Those cash rewards include premium reimbursements. While payments for medical care (such as health insurance) are excludable from income through a cafeteria plan, “any reward, incentive or other benefit provided by the medical program that is not medical care . . . is included in an employee’s income” unless excludable as a de minimis fringe benefit. Examples of de minimis fringe benefits given as part of a wellness program could be a T-shirt, water bottles or key chains. Those de minimis items would not be taxable income.

So the bottom line is that anytime an employer gives cash or cash equivalents to an employee, it isn’t giving a gift; it’s giving additional taxable income.


Continue reading...