Affordable Care Act Leads to Lots of Insurance Questions

With the implementation of the ACA and employees becoming better educated consumers of health insurance, both employees and employers are asking questions that payroll professionals may need to research.

Here is an interesting circumstance:

An employee purchases his or her own health insurance, choosing not to get insurance through the employer’s group plan.  The employee then turns in the bill for that insurance premium each month to the employer, and gets reimbursed for one-half of the monthly premium.

Is this reimbursement taxable?

No, the reimbursement is not taxable.  According to IRS Ruling 61-146, 1961-2 CB 25, under certain conditions if an employer reimburses an employee for documented insurance premiums for non-employer-provided health insurance, the reimbursement should be excluded from gross wages.  This exclusion from gross wages would also apply if the employer were to pay the premium directly to the insurance carrier.

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