New Opportunity for Employee Health Insurance Reimbursement
December 2, 2015
The cost of an employee’s health insurance provided through his/her spouse’s employer-sponsored group health plan can be reimbursed by the employer and is excludable from the employee’s income as long as the spouse paid for all or part of the coverage on an after-tax basis and not through salary reduction under a Code Section 125 Cafeteria Plan.
Example: Married individuals A and B work for different employers. A does not have coverage in a health insurance plan through A’s employer, XYZ Corp. B has coverage in a group health insurance plan through B’s employer 123 LLC. 123 LLC allows employees to add on spouses and dependents to their health insurance coverage so A is covered under 123 LLC’s plan. The Patient Protection and Affordable Care Act didn’t allow XYZ Corp to reimburse employees for health coverage obtained outside of XYZ Corp. Recently issued Chief Counsel Advice 201547006 has clarified that XYZ Corp can reimburse A for the cost of insurance provided by 123 LLC purchased with after-tax dollars. B pays $300 per month for family health insurance coverage through 123 LLC. The $300 is paid via an after-tax payroll deduction. XYZ Corp can choose how much to reimburse its employee A up to the full amount paid by B for the family health insurance coverage.
This does not apply to unmarried taxpayers. Partners in registered domestic partnerships, civil unions or other similar formal relationships that aren’t marriages under state law aren’t spouses for federal tax purposes, but if they qualify, they may be the employee’s dependent under Code Section 152.
Please feel free to contact Rebecca if you would like to discuss your specific situation in greater detail.