Health Insurance Zinger

Today TaxMama® hears from Larry in the TaxQuips Forum with a quick question. “If an employee pays for his family’s health insurance through payroll withholding, is the amount he pays free from taxes? My clients paid $6,000 in 2012 through payroll withholding and his W-2 gross income in block 1 (and blocks 3 & 5) show only the reduced amount. I know that his coverage paid by the employer is not taxable but I have a problem with this treatment.”

                         

Dear Larry,

When a company has a POP (Premium Only Plan), then, yes, the full amount of the
health insurance premiums paid by the employee come right off the top of their wages –
without being taxed for anything. No FICA, no Medicare, no income taxes at all.

In fact, the employer’s own share of these taxes are waived as well. Their workers compensation and other costs based on wages are also reduced. It’s a terrific win-win arrangement.

This is an inexpensive plan to implement for an employer. Most payroll services offer it – talk to PayChex for details on how to set it up – or to your favorite payroll tax company. The administrative costs are more than offset by the tax savings.

And remember, you can find answers to all kinds of questions about health insurance and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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Image Credit:
Tax by 401(K) 2013 on Flickr.