Will I have to claim my job reimbursing me for healthcare as income?

Forum|Forum|7 years ago
June 4, 2019
3 replies
12 views

My job will be reimbursing me a percentage of my health insurance premium each month (something like 60 percent). They'll reimburse me with a check and claim the amount as a business expense for their own taxes. Will I need to report this money as income on my taxes?

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DoninGA

Level 15

Is your employer using a Health Reimbursement Arrangement (HRA)?
If so, you do not report the reimbursement as income on your tax return. Nor do you claim an itemized medical expense deduction on Schedule A for the amount reimbursed.

ldeehan1215Author

Level 2

I'm not sure if they have an HRA but I assume not.

Opus 17

Level 15

This is potentially a very complicated area.

Here's the simple situation: They basically give you a raise, with the plan that you use it to buy personal insurance on the marketplace. The income is taxable, is included in your W-2 as taxable wages. Assuming you do buy insurance, the fact that you are paying with taxable funds means you qualify for the ACA premium tax credit (depending on income) and/or the itemized deduction for medical expenses.

Here's a situation that gets very problematic: The business establishes an HRA, health reimbursement arrangement. This is a fund for your medical expenses that is contributed to only by the employer; employees are not allowed to contribute. The employer can reimburse your out of pocket medical expenses that you prove with receipts. The reimbursements are tax-free to you and a business expense to the employer. The employer funds the HRA with a set amount per year. Unspent amounts can be rolled over to the next year, or returned to company funds, but can't be paid to the employee.

Now, before the ACA ("Obamacare"), it was legal for companies to use an HRA to reimburse employees who bought their own medical insurance. This saved small companies the hassle of buying a small group plan, and allowed the employees to save money by buying their insurance with tax-free dollars. Under the ACA, this is now illegal, and the fine for noncompliance is $100 per day per employee.

Employers now have two options that are legal. They can provide you with employer-sponsored group health insurance that is ACA compliant, and then also offer an HRA to reimburse you tax-free for out of pocket costs like co-pays. Or, if they have fewer than 25 employees and are exempt from the ACA employer mandate, they can provide you with taxable money to buy your own insurance, and it's simply treated like a raise in pay.

If your employer thinks they can reimburse you to buy your own private insurance and have it be tax-free, they need to talk to an accountant or health care specialist immediately, because it's illegal and the fines are brutal.

ldeehan1215Author

Level 2

Thank you for the information! I don't know if my employer has a formal HRA but I assume not. They do have fewer than 25 employees but they also offer a group plan to their full-time employees, but I'm part-time. As far as I know, I'm the only part-time employee needing to buy their own insurance through the ACA so I'm the only one being offered this. From what I was told it, unfortunately, seems like they are trying to reimburse me and have it be tax-free by claiming it as a business expense like miles or an employee buying office supplies.

I will ask that it be included in my W2 as wages. But if they refuse to do this is there a way for me to protect myself and still report the income even if it's not on my W2?