Group Employee Benefit Plans/Health Insurance Benefit
QUESTION: We are a small company (32 employees) based in Virginia. We offered a group health insurance plan until recently. Our insurance broker came in and helped our employees get signed up on the government plans or an individual plan if they didn't have a spouse's plan to join. To replace the group plan the company now wants to pay the employees that were on the group plan the same amount that the company was paying as the company portion of their policy. I was told that this is considered an income for the employees. We want to show this as a separate item on the employee's pay stub so they can see the "benefit" they are getting. The payroll company we use is asking us how we want to map this on the employees W-2. Can you tell me the best way we should be doing this benefit for our employees?
ANSWER: I would call it , code it and pay it as a taxable benefit. So you can have a code set up by the payroll company for this Benefit say it is company paid insurance. It will be set up as a taxable benefit. It is considered taxable income but will show on the stub as Company paid Insurance. It will show as wages in box 1 of the W-2.
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QUESTION: Under the group plan the owners entire cost was covered. Now he is paying for a individual policy out of pocket. What is the best way to reimburse him?
This would depend on whether or not the company is a sole proprietorship, an LLC, a partnership or an S Corp. There are different rules for different types of companies.
I pay the owner's insurance from the company and than I put it on their W-2 at the end of the year. It is taxable to them for federal and state taxes, but not for fica and medicare taxes. It does not go on the 941. It only goes on the W-2 at the end of the year in federal wages and in state wages. We have two owner's in a partnership with S Corp designation.
We code the insurance payments to Health Care expense.
You can reimburse him his payments if he wishes coding it to health care expense, however, it needs to go on the W-2 if he is paid a wage or a 1099 if he is not paid a wage. That is unless he is a sole proprietor than it is figured in his taxes at the end of the year. If he is a sole proprietor he can take a draw against capital and use it to pay the health insurance. It this case it would not be expensed. If the company pays it for him it is expensed as health insurance and he gets a credit for it on his taxes. It is better for the company to pay it.