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Health Insurance Payments

We are a small company, 28 employees, located in Virginia. We are no longer carrying a health insurance policy for the employees to sign up on. We had our insurance broker come in and help them sign up for the government health insurance options or an independent policy if they didn’t have a health insurance option with a spouse. In place of the policy we will pay the employees a set amount of money each week to offset their health insurance cost, in addition to their regular pay.

My understanding is this would be considered a taxable fringe benefit or income for the employee, is that correct? If so, how do we report this on their W-2?

Is there anything else we should know about providing a benefit this way?

According to my sources an additional amount of money given to employees to offset medical expenses is taxable income and should be reported as supplemental wages.

A few key points when providing such a benefit:

The employer must not get involved in the employees’ decision process regarding purchasing health options, specifically which insurer or plan to use. It was very nice of you to offer your insurance broker’s assistance to your employees. Some HR/Insurance professionals wouldn’t recommend doing so again. It opens the door for your employees to come to you with issues regarding their health care coverage. It must be clear that you are not involved in the relationship between the employees and their insurance carrier.

Employers must not get involved in any negotiations with the insurance carrier, provide any forms or materials related to the insurer or policies, and not get involved in any claims dispute no matter what. The employee must be solely responsible for maintaining his coverage in all aspects.

This probably goes without saying but to be sure…The employer should never pay for premiums directly to the insurance carrier. Again, the employee must be responsible for maintaining his coverage. Also, the employer must never accept any compensation from insurance carriers related to employees’ individual health insurance.

Employers’ offering of supplemental wages in an effort to offset employees’ individual health care coverage will probably increase in popularity among small business owners in the next year or so. There will most likely be more standards established or even regulations adopted surrounding such a benefit.

This entry was posted on Tuesday, April 1st, 2014 at 11:29 am and is filed under
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