Pre vs Poast Tax Health Insurance Payroll Deduction

Technical topics regarding tax preparation.
#1
Posts:
2612
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
An employee is arguing that the deductions that his employer makes from his paycheck for some of his health insurance and the health insurance of a dependent should not be included in his W2 as income.

Details:

Employer does not offer paid insurance for a dependent of an employee.

The employer requires that the employee pays for a portion of the employee's health insurance.

The employer deducts $300 per month from the employee for the employee's dependent, and $150 per month for the employee.

The employer does not have a cafeteria plan.

The employer disagrees with the employee:

The employer figures that it must include this $450 per month as taxable income to the employee and it will show up in box 1, 3, and 5.

The employee can take this expense as an itemized deduction, subject to the limitations.

Who is correct? The employee or the employer?
 

#2
Posts:
1362
Joined:
22-Apr-2014 9:07am
Location:
Chicago, IL
IRS Requirement for pre-taxed employee benefits

If you are an employer wanting to allow your employees to pay group health and other insurance premiums with pre-tax salary deductions, the answer is yes, you need a Section 125 plan document.

In most employer-sponsored group benefit plans, employees pay for health insurance and other qualified benefits with tax-free dollars. It’s just taken for granted; that’s the way it’s done.

However, that tax-advantaged treatment is not automatic. The employer must do it through a Premium-Only Plan (POP) or Cafeteria plan, and to set up one of those, you need a Section 125 plan document.


If the ER does not have a §125 plan, then the ER is doing it correctly.
 

#3
Posts:
1362
Joined:
22-Apr-2014 9:07am
Location:
Chicago, IL
For the incredibly low cost of setting up and maintaining a §125 plan, why on earth would the employer not set one up for the benefit of their employees?
 

#4
Posts:
2612
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
Nightsnorkeler wrote:For the incredibly low cost of setting up and maintaining a §125 plan, why on earth would the employer not set one up for the benefit of their employees?


Thanks..


The employer is a layperson/laborer and not so easy to communicate with.... Unresponsive, difficult, blame orientated, ineffective (blows off tasks), plays dumb when all they need to do is read the question and think about it for 15 seconds, wont read past the first sentence of an email, etc.

Perhaps the employee's next step is to simply ask the employer to ask their insurance agent if they have a 125 plan - or try to convince them to get one?
 

#5
Posts:
1246
Joined:
22-Apr-2014 5:22pm
Location:
Upstate, NY
Maybe if someone makes him realize he would save the employer side SS and med on the Insurance, he would spend the $ on a 125 plan. They are cheap so he will make that $$ back over time then reap the rewards beyond.

Without a 125 plan it is being treated correctly.
 

#6
taxcpa  
Posts:
716
Joined:
29-Apr-2014 6:47am
Location:
USA
If the employer is that dumb and difficult, perhaps a change of employment might be in order.

What does your guy do, that he is working for a "laborer"?
 

#7
Posts:
1246
Joined:
22-Apr-2014 5:22pm
Location:
Upstate, NY
I’d ditch this client. He sounds like he should be an employee and not an employer..
 

#8
Posts:
2612
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
It's construction related.

We've tried to ditch him several times and he won't let us, LOL. We've even tripled our fees since the first attempt. He's not hostile nor does he ask us to do anything unethical - so I bill him for being a PITA and that's that.

I'm trying to see if he has a 125 plan and if not to set one up.

Thanks for all of your answers!
 

#9
Posts:
2612
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
The employer's health insurance and payroll provider said it's up to me, the "tax person" to set up the cafeteria plan.

Is my next move to find a service that does this as a third party?
 

#10
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
I am surprised that neither the insurance broker or payroll company offer a premium only 125 plan.
Independent 3rd party provider will probably charge more than either one of them would, if they offered it.
 


Return to Taxation



Who is online

Users browsing this forum: BFStax, davidlat, Google [Bot], Google Adsense [Bot], JessCPA113, JoJoCPA, Miami88, Nilodop and 122 guests