Taxable compensation or medical reimbursement?
As a result of a collective bargaining agreement, an employer-sponsored full-reimbursement health care plan was changed to include a $1,000 per family deductible. However, at the beginning of each plan year, employees received a cash "Health Care Bonus" equal to this amount. The employer requested guidance from the IRS on the applicability of FICA and FUTA taxes to the bonuses.
The Service found that the health care bonus was not a reimbursement because it was not paid as the result of any ailment or injury (Regs. Sec. 1.105-2). Furthermore, all qualified employees received the bonus regardless of any actual medical expenses incurred during the year. In addition, the employees had complete control over the disposition of the bonus. Thus, the IRS ruled that the health care bonus was "remuneration for employment" (Secs. 3121 (a) and 3306(b)), and not a medical care reimbursement as part of a self-insured medical reimbursement plan; see Rev. Rul. 75-241, in which cash payments in lieu of medical care benefits were treated as wages for FICA and FUTA purposes.
From David J. Kautter, CPA, Washington, D.C.
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|Author:||Kautter, David J.|
|Publication:||The Tax Adviser|
|Article Type:||Brief Article|
|Date:||Jan 1, 1996|
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