ERISA and Employee Benefits Alert

Employer Health Plan Benefits Includable in Income

In CCA 201719025, the IRS ruled that a benefit paid under an employer-provided self-funded health plan was included in income and wages if the average amounts received by the employees for participating in a health-related activity predictably exceed the after-tax contributions by the employees. The IRS concluded that the employer-provided self-funded health plan did not involve insurance risk, and therefore, was not insurance. Nor did it have the effect of insurance for federal income tax purposes, including Section 104(a)(3). Also, the IRS found that the ratio of the average amounts received by the employees for participating in health-related activities to the after-tax contributions by the employees demonstrated that the amounts received by the employees were attributable to contributions by the employer, and not employee after-tax contributions. The IRS decided that the Section 104(a)(3) exclusion from gross income did not apply to the amounts received by employees. As a result, the benefits were included in income and wages.

Please let me know if I can put you in touch with our ERISA and Employee Benefits Group Chair, Martin D. Hauptman, for further information about this Alert or any other questions in this area.

CASEY GOCEL, ESQ. LL.M., Member
Mandelbaum Salsburg
3 Becker Farm Rd., Suite 105, Roseland, NJ 07068
973.821.4172
cgocel@lawfirm.ms