ORISE fellowship program and Health Insurance Costs

[tpowell1239]

Imaginary numbers/real scenario:

My stipend (base/net pay) is $5000. For 2016, I selected the ORISE health insurance plan (cost = $1000/month) because it seemed like the best deal (initially)- great coverage and ORISE paid for it. The amount of my stipend, and thus my “gross pay,” is now $1000 more a month ($6000), which I'm afraid is what I will be taxed on. This increase in the stipend amount results in an increased year end gross pay total, and a considerably higher amount (~$200/month) tax bill.

Because ORISE is not my employer, I can’t claim that the added $1000 is not a wage and thus not taxable, as this blurb from IRS page on Employee benefits says:

“if an employer pays the cost of an accident or health insurance plan for his/her employees, including an employee's spouse and dependents, the employer's payments are not wages and are not subject to Social Security, Medicare, and FUTA taxes, or federal income tax withholding.”

But how can my health insurance costs, regardless of whether ORISE pays them, be taxed?

I looked at the IRS Pub 970 as well, but saw nothing regarding health insurance premiums. Am I now responsible for paying taxes on the added amount to my stipend, even though it goes to health insurance costs? Or is there a way to deduct it?

[wcl]

I'm in a similar boat as you and unfortunately, I suspect that we will have to pay taxes on the additional cost of insurance.

From the IRS: https://www.irs.gov/publications/p970/ch06.html#en_US_2015_publink100025440

Health insurance is not listed as a qualified expense. Further, since we are technically not "employees", the blurb you referenced from the IRS does not apply to us.

It's a bad situation, and logically, it would make the most sense to be taxed only on our take-home pay, but since we're fellows (and not employees), we really get the raw end of the deal. If there's anyone qualified to give a better answer / an answer more favorable to our situation, I'm all ears.

[confused_]

I have this exact question. Did you ever get an acceptable answer?

Since ORISE deducts payments for the health/drug insurance from the monthly paycheck (that is, I never have access to that money), it would seem to operate in the same way as an employer-sponsored health plan, especially since the health plan is administered specifically for ORISE participants.

[KrisD15]

It would be the same for someone that gets paid, and turns around and purchases their own health insurance. 

They are not purchasing it for you, you are. 

Millions of people pay for health insurance through their employment. Sometimes the employer pays part, but often the employee pays also, and that is deducted from their paychecks after tax. 

You can claim the payments as medical expenses and use them on Schedule A if you itemize. 

[confused_]

Except in this case, it is not employment but a postdoc. ORISE participants are required to pick either the provided health insurance plan or enroll in their own. Also, the money that goes to the provided insurance is not part of the offered stipend--for example, if I am offered a postdoc that pays $45,000 per year, I get $45,000 per year and then ORISE provides the health insurance out of a separate pot of money, to the tune of about $5,000 per year.

If postdocs are required to pay taxes on that extra $5,000 worth of insurance, that is an additional burden of more than $1,000 per year that must come out of the already-taxable $45,000 that we actually receive. Considering that in the case of an employer-provided health plan, the money that goes to the health provider is tax-free, it would seem to be rather unfair to require postdocs, who are employees in all but name, to pay taxes on their required insurance.

[DianeC958]

You are still required to pay taxes on the full amount even though part of the money went directly to pay for health care.

[confused_]

Thank you for your attention to my questions. Can you please cite the appropriate tax code or case law to support this opinion? I apologize for the inconvenience, but without any sources I can't tell the difference between facts and random internet opinions.