Can Employer Give Tax-free Healthcare Allowances?

dlongawa

If a Small Employer decides to drop health insurance as a benefit, and that employer has always paid 75% of his employees' premiums-- what is the best solution for reimbursing full time employees losing a significant benefit? Can the employer provide a tax-free allowance? If it can't be tax free, is there any benefit to offering an allowance vs salary increase?

davids

Just a thought - If you provide the health insurance payment as a salary increase, it will compound on future salary increases. If you provide it as a separate allowance, you can choose to increase it, or not, irrespective of future salary increases. Additionally, if you roll it into salary, a year or two down the road, employees will forget that their salary includes an insurance stipend. I would keep it separate, so employees know you are providing a specific stipend for health insurance.

dlongawa

Thank you, David, for your very wise advice. Forgive my ignorance on the matter-- can allowances be tax free and issued by the company as an expense? Or, do allowances still go through payroll, taxable, etc?

davids

I am not a payroll or tax expert; but my guess is an allowence paid directly to the employee (rather than purchasing health insurance) would be taxable.

dlongawa

you're right... i looked into it further. thanks.

arnoldous

Employers are 100% allowed to reimburse individual health insurance premiums tax-free under the tax code. This is a MAJOR positive, as per the Department of Labor, the Department of Treasury, and Health and Human Services.