Reimburse employee for own health insurance premiums

Christie · November 2001

I read in the 2001 Federal Tax Handbook, paragragh 1260, that an
employer can exclude from employees gross income the cost/premiums of
employer-provided coverage of health insurance plan. What if an
employee can get insurance on their own cheaper than the employer can
provide and the employer reimburses the employee for their own insurance
premiums. Does the premium reimbursed to the employee need to be
included in gross income?

Let me know if you need additional information.

Thank you for your help.

Christie

System · November 2001

As I understand it, you can set up a "Group Direct Reimbursement" plan where employees turn in receipts for their premiums, and the company reimburses them for all or a portion of their premium. I don't think you can include this in a 125 plan because it is not a "group" plan. But, you could check with your tax people for this answer.

rachd · November 2001

The only way I am aware of a business being able to pay individual insurance premiums is through a cafeteria plan (although that doesn't mean there's not other ways!). We currently have our cafeteria plans set up to run individual insurance through the plans. However, there are strict rules governing this and we have to be careful to do it right. At this point, we absolutely cannot reimburse the employee but must instead send payment to the insurance company directly from the plan. We are in Minnesota and I know currently, there are some conflicts with the state law regarding individual insurance vs. group insurance and cafeteria plans but as of yet, they are unchallenged so we continue to do it. We also have some problems with employees not submitting their premiums early enough. Fortunately, we haven't heard of any participant losing their insurance but it does take responsibility on the part of the employee and the administrator of the plan.

Reimburse employee for own health insurance premiums

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