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Tax free fringe benefits

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  • Tax free fringe benefits

    My employer does not currently offer a group health insurance plan to any of its employees. If I understand correctly, if he were to pay all or part of employees' private insurance plan premiums, they would be tax free.
    If he chose to do so, is he legally allowed to selectively offer this benefit as a negotiation of the individual's compensation, or would he have to offer the benefit to all employees who meet established criteria, such as all full time, year round employees? Is there anything of an administrative nature that must be done first, or can he simply begin paying premiums?
    The states of employment would be Arizona and North Carolina.
    Last edited by CatHerder; 11-11-2018, 09:25 AM. Reason: Failed to include which states we operate in.

  • #2
    I hope he has less than 50 employees or he is in violation of the law by not offering coverage now.

    If he is planning to offer insurance to his employees and if he plans to do it legally, he needs to establish eligible classes of employee and those eligible classes must conform to the employer mandate of the ACA. Then he needs to offer the insurance to every employee in those eligible classes. It's okay if they turn it down, but it has to be offered.


    • #3
      Thank you for your response. Yes, the company has less than 50 full time, year round employees. We are actually two separate companies, operating two seasonal, themed festivals, so we have a small number of full time managers, and a large number of employees hired to work only eight weekends each year. (The three week lag in my response is due to the push to close down the Festival we operate in one state and travel to the other state in order to gear up there.)
      My boss is not planning to offer coverage at present; those of us that have insurance have secured individual policies. I knew that an employer could cover them tax free, and was hoping to reduce my salary by the amount of the premium, and then have the employer pay the premium. There would be a modest tax benefit for both of us, making my coverage at least a little more affordable. Based on your response, however, I take it he could not do that without offering the same option to all employees, if he could do it at all. Would it be legal for him to offer this as an option?


      • #4
        I am going to stay away from the ACA requirements. I have not been keeping current with the changes. Which leaves us with employer provided health insurance (IRC 103-104) and pretax deductions (IRC 125). Which are two very different things.

        (Ignoring ACA) IRC 103-104 supports both third party provider plans (Blue Cross, Kaiser) and direct employer provided (reimbursed expenses). Direct employer provided only cannot discriminate in favor of highly compensated employees. Both types of plans must be in writing, and must provide a Summary Plan Document to all employees (IRCA law). Only "qualified" expenses are covered and only "qualified" persons can be recipients. This is not a DIY project. One of the huge advantages to Third Party Payer plans is the Third Parties know the rules and do all the heavy lifting for you.

        Making deductions for the health care program pretax means establishing a formal Section 125 plan complete with yet one more Summary Plan Document. Also not DIY. IRS greatly tighten the rules on S125 a while back. You can have a health plan without a S125 plan. The reverse is not true, at least as far as health insurance related deductions are concerned.

        ACA, plus the various administrative orders and court actions have twisted the original very simple IRC 103-104 rules like a pretzel. Something once very easy is now very complicated. I will defer to CBG on all matters ACA.

        "Reality is that which, when you stop believing in it, doesn't go away".
        Philip K. **** (1928-1982)