Printer Friendly

Taxable compensation or medical reimbursement?

The Service has ruled in Letter Ruling 9522030 that an employer's payment of a yearly bonus to all employees in the amount of their health insurance deductible is taxable compensation rather than an excludible 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.
COPYRIGHT 1996 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1996, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Kautter, David J.
Publication:The Tax Adviser
Article Type:Brief Article
Date:Jan 1, 1996
Previous Article:Payments to lawyer serving on client's board of directors.
Next Article:Tax-free hospital discounts to certain classes of patients.

Related Articles
Correct rules for deducting med insurance costs.
Frequent flier foolishness.
"Sale" of frequent-flyer miles results in taxable income.
Reimbursements of pre-tax health insurance contributions are taxable.
Pre-tax health insurance "reimbursements/loans" are taxable.
S corporation's treatment of employee-shareholder fringe benefits.
Total compensation: benefits are important.
Accountable plan rules denied income exclusion for tool reimbursements.
Medical reimbursement plan for employee-spouse.

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters