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

[ldeehan1215]

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?

[DoninGA]

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.

[ldeehan1215]

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

[Opus 17]

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.

[ldeehan1215]

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?

[Opus 17]

It's a deductible expense to them whether or not it is tax free to you.  The only difference is that by including it in your W-2, they would have to pay an additional 7.65% employment tax.  Of course, the income tax you would have to pay reduces the purchasing power of the supplement.  

I will try to find some documents for them that the supplement must be taxed.  If they don't, they're the ones who get fined, not you.

[Opus 17]

Here are some links

http://www.hni.com/blog/reimbursing-individual-health-insurance-policy

https://boss.blogs.nytimes.com/2014/09/29/can-a-company-reimburse-employees-who-buy-their-own-health...

"Notice 2015-17 confirms that an employer's increase of an employee's compensation to assist the employee in purchasing health coverage in the individual market will not be considered an employer payment plan subject to the ACA market reforms as long as the compensation increase is not conditioned on purchasing health coverage and the employer does not otherwise endorse a particular policy, form or issuer of health insurance. Employers may therefore offer these types of compensation increases without triggering any ACA excise tax penalties."


https://www.irs.gov/pub/irs-drop/n-15-17.pdf

[taxattorney24]

Hello @Opus 17 ! You certainly are prolific and exceedingly helpful on this platform. Are you able to provide any verifiable support for your below set forth June, 2019 assertion? Specifically, in response to a user's question about HRAs you responded as follows: 

"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."

Further, in reference to HRA's utilized to reimburse employees who buy their own medical insurance, you stated,   "Under the ACA, this is now illegal, and the fine for noncompliance is $100 per day per employee."

Note: All of the links you previously provided are inactive. Thanks in advance for the clarification. 

[Opus 17]

@taxattorney24 

The problem here is that this post is from 2016 or so.  The 2019 date is an artifact of moving the old post to new software, which also messed up the links.  I was able to fix a couple of the links so they work now.

Also, I the time I wrote this I was the treasurer of a church that was involved in providing insurance for our pastor, and I was forced by the ACA to learn these rules so that I didn't create tax complications for the church or the pastor.  I ended that position a long time ago an no longer have the facts at my fingertips.

However, I believe the overall point is still valid and correct.  The employer can provide a group health insurance plan to the employee (even if the group is 1 person, I did this at my church).  The employer can pay for the plan from any combination of employer funds and pre-tax employee deductions, by following the rules for section 125 cafeteria plans (being especially aware of the rule that if there are more than one employee, all similarly situated employees must be offered the same benefits package.)

Or, the employer can give the employee a taxable wage increase that the employee can use to purchase a marketplace plan.

What is not allowed is for the employee to purchase a marketplace plan and then be reimbursed from a tax-free HRA.