Employee Reimbursement of medical expenses is a common practice, especially among small employers looking more solutions affordable health insurance . There are several ways to go about the employee reimbursement of medical expenses, so what is the tax treatment? Here is a look at the tax treatment of different scenarios repayment
Formal medical reimbursement plans -. Tax treatment
If you offer an official medical reimbursement plan, as Health Repayment Plan (HRP) or account repayment of health (HRA) , repayments are tax deductible for the company and employees tax free.
These types of medical reimbursement plans are often called "Section 105 plans" named for the tax code section ( IRC Section 105 ) that allows a non-taxable reimbursement of expenses incurred for medical care as defined in section 213 (d), including reimbursement of individual health insurance expenses.
We receive many questions about how these types of repayment plans comply with the new health reforms, and if they are still allowed. Plan reimbursement of medical expenses tax benefits are still allowed. They must, however, be designed to comply with the new health reforms ( " The market reforms "), and other federal rules under the law . ERISA, IRS, HIPAA and COBRA
to summarize, medical reimbursement of official plans are:
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deductible tax on the employer similar to premiums paid for group health insurance premiums.
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to employees tax free. Refunds will are not taxable income, not included on the W2 employee.
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must respect the rules and reforms of group health plans.
Related: FAQ - Section 105 Plans are tax deductible for small employers
Casual medical expenses Reimbursement - tax treatment
If you offer employees the reimbursement of medical costs without a formal plan, reimbursements are treated as taxable income
of examples of scenarios where refunds are taxable include :. salary extrapolation, providing money for health care, or pay employees directly for medical costs or premium
Important note .: The rules for employees paying medical expenses employees have changed. Employers should avoid directly reimburse employees for medical expenses or to pay for their expenses directly. This type of arrangement is considered a Shot employer payment , and employers could face a heavy fine for non-compliance
Related :. 4 Rules to give employees cash for health insurance
Conclusion
rule, reimbursement of medical expenses is tax-efficient if the employer uses a formal repayment plan complies. If the company uses a more casual arrangement, payments are taxable and must take care not to offer an employer payment plan.
What questions do you have about the tax treatment of employee medical reimbursement fees? See this chart for a visual, or leave a comment below.
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