In the past, an employer was permitted to reimburse employees who are not covered by group accident and health insurance but who carried their own policies. The employee was required to show proof of the payment of the policy premium to the employer, and the employer would reimburse the employee for the premium amount. The reimbursement was deductible by the employer and was nontaxable to the employee.
Effective for plan years beginning on and after January 1, 2014, the rules have changed under the Affordable Care Act. This arrangement no longer qualifies as a nontaxable fringe benefit to the employee. The amount of the reimbursement must be included in the taxable wages of the employee and is subject to FICA and federal income tax withholding. The expense is deductible by the employer as compensation expense.
If you have questions regarding this information, please contact us at 239-433-5554. You may also visit our website at www.markham-norton.com.