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  • 1.  Employer paid sect 125 benefits for SOME employees-taxation?

    Posted 08-31-2023 13:23

    We are an employer that offers Sect 125 Med, Dental, and Vision benefits to our employees in OH.  Employees all have deductions from their pay for each of these benefits.  We now have 6 employees that we will cover for these benefits, but the difference is they will NOT have the same deductions as the other employees.  We have not carved out a special group for these employees in our benefits plans.  They are all enrolled, but will NOT have any deductions for their benefits.  My question is: Since they are not contributing towards their benefits and the other employees are, wouldn't the the amount that they would have paid for these benefits be considered a taxable fringe benefit?  Is there anything that I need to include as income for these employees?  

    Thanks

    Rich


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  • 2.  RE: Employer paid sect 125 benefits for SOME employees-taxation?

    This message was posted by a user wishing to remain anonymous
    Posted 09-05-2023 17:02
    This message was posted by a user wishing to remain anonymous

    2023 Publication 15-B (irs.gov)

    Accident and Health Benefits
    This exclusion applies to contributions you make to an accident or health plan for an employee, including the following.
    • Contributions to the cost of accident or health insurance including qualified long-term care insurance.
    • Contributions to a separate trust or fund that directly 
    or through insurance provides accident or health benefits.
    • Contributions to Archer MSAs or HSAs (discussed in 
    Pub. 969).
    This exclusion also applies to payments you directly or 
    indirectly make to an employee under an accident or 
    health plan for employees that are either of the following.
    • Payments or reimbursements of medical expenses.
    • Payments for specific permanent injuries (such as the 
    loss of the use of an arm or leg). The payments must 
    be figured without regard to the period the employee 
    is absent from work.
    Accident or health plan. This is an arrangement that 
    provides benefits for your employees, their spouses, their 
    dependents, and their children (under age 27 at the end of 
    the tax year) in the event of personal injury or sickness. 
    The plan may be insured or noninsured and doesn't need 
    to be in writing.


    Original Message


  • 3.  RE: Employer paid sect 125 benefits for SOME employees-taxation?

    Posted 09-06-2023 11:41

    I believe the only time it would be taxable is if the plan fails nondiscrimination testing. This is typically a concern with highly compensated employees. Not sure whether that's the case here or not. If your health plan fails testing, the benefits become taxable to the employee.


    Original Message


  • 4.  RE: Employer paid sect 125 benefits for SOME employees-taxation?

    Posted 09-06-2023 17:12

    Contributions to cafeteria plans are withheld on a pretax basis. Since most employer paid plans are pretax, I would think the same would hold true even if there is no employee deduction. As long as your plan meets the requirements for a cafeteria plan there should be no tax implications to the employee. The taxable income would just not be lowered by the portion paid by the employer. 


    Original Message


  • 5.  RE: Employer paid sect 125 benefits for SOME employees-taxation?

    Posted 09-07-2023 12:54

    Health Plans

    If an employer pays the cost of an accident or health insurance plan for his/her employees (including an employee's spouse and dependents), then the employer's payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. 

    Employee Benefits | Internal Revenue Service (irs.gov)



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    W. L. Patterson
    Fin/ Pyrl Mgr.
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    Original Message