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Medical Insurance Premiums as Taxable Compensation

The IRS recently ruled on this issue.


• The IRS ruled that workers receive taxable compensation if they can choose to have their employer pay their medical insurance premiums or receive an equivalent amount in cash. An employer adopted a group health program for its employees and paid employee medical insurance premiums directly to the insurance company. Employees who chose not to participate in the program were given cash in the amount of the premiums that the employer would have paid. The IRS noted that section 106 of the Internal Revenue Code permits employees to exclude from their income taxes the amount of health insurance premiums paid by their employer. The IRS further acknowledged that it ruled in 1961 that employees who pay their own health insurance premiums directly to an insurance company and are reimbursed by their employer for the amount of the premiums do not have to report this amount as income for tax purposes ...

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  • July 1, 1991