OK for Employer to Pay Employee's Spouse's Premiums?

Discussion in 'Health Insurance and Ancillary Benefits' started by Ambidexrtous, May 17, 2017.

  1. Ambidexrtous
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    Ambidexrtous New Member

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    First, thank you all for considering my question and offering your replies. I work in MA at a very small <10 employees firm. They have been offering $X per month in pretax gross-up of our income when we show them an insurance bill. So, in effect, we have company-paid coverage, but all staff must get their own policies.

    One of our staff has asked that the our company pay him the difference between one person covered versus two covered in his spouse's company insurance plan. (Make sense? If her coverage were $500, and both are $800 -- he is asking for $300 per month.) From my days of owning a company and offering benefits (well before the days of ObamaCare and newer laws) I would have thought this was not legal to in essence, pay your employee not to take coverage, and pay them to get coverage elsewhere.

    I would not care much about this, except that one of the reasons that our company will not just go out and get a group plan that we could either take or leave is that this employee wants to get the payout, and that would not happen if we did offer a group plan.

    Any thoughts on this? Is it legal? My boss needs some guidance and frankly is not too bright about this sort of thing. I would love to be able to offer counsel -- and if possible links to further reading. Again, thank you!
     
  2. scagnt83
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    scagnt83 Well-Known Member

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    What the Owner is doing now is illegal (in the sense that it is a violation of multiple Federal Regulations).

    What is proposed is also in violation of Federal Regulations.

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    Paying a Bonus that is "contingent" on purchasing individual insurance, violates DOL, IRS, & ACA (obamacare) Regulations. (sometimes state labor and insurance laws as well)

    They can pay bonuses instead of providing insurance. But it must be provided to all employees, in equal amounts, and without any contingencies whatsoever.


    So they can give each employee a flat amount. But it cant be tied to the purchase of any outside product or service (including but not limited to insurance).

    However, they could give a certain amount "per family member" if they wish. (a bit of a gray area, but most accountants and attorneys agree on this)

    *Also, if the business becomes large enough, paying bonuses will not exempt the company from any mandatory coverage requirements and related fines, under ACA.

    My source on all this is a decade of experience providing employee benefits to small businesses. This guy needs a good Tax Attorney, CPA, or Benefits Specialist. If he gets audited with this setup he is screwed.
     
  3. DHK
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    DHK Well-Known Member

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    https://www.irs.gov/pub/irs-pdf/p15b.pdf

    See page 5:
    Accident and Health Benefits
    This exclusion applies to contributions you make to an accident or health plan for an employee, including the following.
    Contributions to the cost of accident or health insurance including qualified long-term care insurance.
    Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits.
    Contributions to Archer MSAs or health savings accounts (discussed in Pub. 969).

    This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following.
    Payments or reimbursements of medical expenses.
    Payments for specific permanent injuries (such as the loss of the use of an arm or leg). The payments must be figured without regard to the period the employee is absent from work.
    Accident or health plan. This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27 at the end of the tax year) in the event of personal injury or sickness.
    The plan may be insured or noninsured and doesn't need to be in writing.


    There's plenty more to read, but I think you'll find your answer in that link.

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    However, I am NOT skilled or that knowledgeable in this area, and Scagnt83's post should be carefully reviewed and considered.
     
  4. Ambidexrtous
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    Ambidexrtous New Member

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    Thank you both -- let me share a bit more information. Right now, let's say my personal health insurance premiums are $1000. My employer agreed to pay 75% of my insurance. So, my monthly pay is grossed up $750 to cover the employer's share. They pay the premium (I give them my bill). They take $1000 pre-tax from my pay to pay the bill. So their $750 passes through without any effect on my net income, and my $250 comes out pre-tax. This is supposedly a plan that was vetted by payroll administrator, ADP (although I do not wholly trust their expertise or the boss's ability to accurately explain the plan). Everyone thinks this is legit -- with the new concern that there is a $4950/year limit on this sort of contribution for an individual employee and $10,000/year for a employee purchasing a family policy. At the moment, we are within those parameters.

    I'd really appreciate a reference to any reading on the business of paying my colleague so he can get covered for part of his wife's policy. That part is what seems extra shady to me -- being paid to not accept a benefit.... and passing the liability on to another employer. Again -- thanks.
     
  5. rcduggan
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    rcduggan Well-Known Member

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    illegal, period.

    employer sponsored plans favor taxation on both the employer and employee by allowing the employer to deduct their contributions while at the same time using employees paid contributions with pre-tax dollars (referred to as section 125 or POP aka Premium Only Plan). part of this is displaying that employer/employee relationship to the carrier otherwise what would stop company XYZ from doing this for anyone regardless employee or not (as such the case of employee's spouse).

    lower income tax with twisty stuff doesn't make sense. why not just write a group?
     
  6. Ambidexrtous
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    Ambidexrtous New Member

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    Thanks RC. You are confirming my gut response. And why not write a group? Why not, indeed. I have suggested it. Even referred them to the company that wrote my company policy when I owned a business and had anywhere from 2-14 covered employees. I really think the whole motivation here is the one employee who wants to double-dip, and management's perverse desire to accommodate him.
     
  7. somarco
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    somarco Well-Known Member

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    Group plans have non-discrimination rules, participation and employer contribution requirements. Makes for a difficult sale if the employer is cheap and wants to pick and choose who he/she will reward by paying for their health insurance.
     
  8. scagnt83
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    scagnt83 Well-Known Member

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    This would be some type of Sec 125 Plan (unofficially sometimes called a "Cafeteria Plan").

    Sound like its most likely a Premium Only Plan (POP). This is designed to be used in conjunction with a GROUP Health Plan.

    If I remember correctly, the DOL just reaffirmed this not too long ago. There was a firm called "Zane Benefits" that was pushing POP Plans to pay for individual Obamacare subsidized policies. Court ruled against them.

    What is scary, is that technically, the IRS could go back and say all that "pre-tax" income should have been taxed.... and now employees owe those taxes.... that is if the business was audited....

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    I would bet my next commission check that ADP did not approve this. They likely assume he has a group plan. They have no way of verifying if the business has insurance or not.... or what kind of insurance is in play. They only know what they are told. And the Employer tells ADP how much to withhold pre-tax each month. Its on the business to abide by the law and be honest, ADP is just doing as instructed. I guarantee they didnt tell him to use this with reimbursing individual ACA policies.

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    I have no clue what those limits are you referenced. They dont jive with any limits for benefits plans that I can think of. Not even prior year limits. It makes me suspicious that is just the amount he is unwilling to go over each year. Perhaps someone else recognizes those limits and knows what type of Benefits Plan they are related to.

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    ** This is not professional tax advice, business advice, or personal financial advice. Both you and your employer should seek professional guidance from advisors who are licensed in your state. I am just stating my opinion on the situation based on 10 years of experience **
     
    Last edited: May 17, 2017
  9. timamr
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    timamr Well-Known Member

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    From my experience, a small group plan is very expensive on an employer(but then again, everything is and I am no group expert). With that said, you are posting to a forum with a bunch of insurance agents. We are NOT tax specialists/advisors and thus prohibited(leary) from making statements about tax issues. Your best bet is to ask a CPA for his/her advice and then come back and ask for help on this forum, if need be. I wish u all the best!
     
  10. rcduggan
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    rcduggan Well-Known Member

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    in my state, some plans offered through GRP are LESS expensive than it's IFP mirrored counterpart and to tell someone broadly that GRP plans is "very expensive" has me questioning you authority and/or lack of experience.

    expensive for who exactly? without anything quoted, number of employees, DE9's, or other docs, how can you say what is expensive, especially for someone else? because you can't afford it? if you have that thought process, i'd go as far as saying you don't even write grp or health insurance at all.
     

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