How do I report cobra money received from former employer (in 2022) on the 2022 tax return?

[Shooshoo]

I noticed that FICA, Medicare & a state health tax were deducted, but no Federal Income Tax.  The amount received exactly covers me and my dependant for 6 mos.  Am concerned about how this may affect my tax situation, though it may not, and wonder how it figures into the tax return.

[tagteam]

See https://www.google.com/search?q=cobra+paoyment+taxes+former+employee&source=hp&ei=skj9YsfsHI_VkPIP_t...

and 

https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/canwepayforaformerorcurrentempl...

[Shooshoo]

Those links were of no help.  (2nd link) I am not joining some HR org, & answering with a very nonspecific Google search page (1st link) is pretty lame.

[Mike9241]

since you say FICA, Medicare and State Health taxes were deducted you're going to get a w-2 for 2022 early in 2023 for the gross amount. (not sure if state health tax will be included in wages box 1).  I can see no other scenario where it would be proper for these deductions.  the best way to check this is to contact your former employer. 

[dmertz]

The first bullet in the second link gives you the answer.  These payments to you are considered to be wages.  As wages, these payments will be reported by the employer to you on a W-2 which must be included on your 2022 tax return. The amount reported in box 1 (the amount of cash you received plus the withholding) of the  W-2 will be includible in your 2022 Adjusted Gross Income.

[Shooshoo]

If considered to be wages makes no sense that they did not withhold FIT (federal income tax), because they did withhold FIT on my separate severance amount deposited to me on the same day. Looks like I need to speak to a real accountant. Thanks all for trying.

[dmertz]

You are correct, it might be that the employer should be withholding income taxes.  You need to talk to your former employer, not an accountant, about that.  I was going to mention that in my previous reply, but I chose to pare down that reply.  It's possible that the payments are small enough that no withholding is required based on the last W-4 that you provided to the former employer (or standard withholding).

[Shooshoo]

HR responded: 

"COBRA payments that are paid to the employee by the employer are considered wages and subject to applicable taxes.

The intent of those payments is that the employee will use the funds to pay the COBRA premiums.

When the employee pays for COBRA premium to the insurance company, those payments made by the employee are considered tax-deductible to the employee.

When filing taxes, COBRA premium payments can be deducted as medical expenses. With this consideration, the Federal income tax is typically not withheld on COBRA."

[dmertz]

I don't think that the former employer is permitted to consider that these supplemental wages might be used to make COBRA payments.  They are essentially severance pay.  The former employer has no way to know if an amount equal to these payments will be deductible on the individual's tax return or not.  The potential deduction is dependent on you making the insurance payment, not on receiving this supplemental income.

I suspect that many people do not even qualify for this to be a deductible expense.  Only medical expenses in excess of 7.5% of AGI appear on Schedule A line 4 and the total deductions on Schedule A need to be greater than the standard deduction for Schedule A to be used (unless the individual has some particular reason to use the lower itemized deductions).

[Mike9241]

could be that your employer figured the withholding that was taken out of your severance pay based on the total of that and the cobra payments. I'm just guessing. only your ex-employer can give you an answer. 

[Billo3]

So if the employer pays you the money for the COBRA premiums, then you need to report it and then apply for deduction?

And if the employer pays the insurance directly, it is not taxable?  

[dmertz]

To be excludible from income, the employer payments would have to be to a section 125 cafeteria plan.