W2 plus 1099

Today TaxMama® hears from Paula in the TaxQuips Forum who is offended. “My employer in California wants me to purchase my own health insurance policy, then have me expense the cost each month. He would give me a 1099 for the additional income at the end of the year. Is this legal?”

 Dear Paula,

Sorry, I don’t understand. If YOU are buying the policy, why is he giving you a 1099? A 1099 means that HE paid for something.

Besides, health insurance benefits don’t happen on 1099s, even if he pays for them.
The benefits are not taxable to you.

However, if he is having you pay for your premium through his company, since he can get a lower group rate than you can get on your own, your boss needs to set up a flexible spending plan or a premium only plan. ALL payroll services can do this for him.

What this does is, it lets you pay for your premiums out of your own wages. It reduces your taxable wages so you never pay IRS or state income taxes OR Social Security or Medicare on that amount each paycheck. (This saves him money on HIS share of the SS/Medi taxes as well as on his Workers Compensation insurance, too.)

Paychex can do this for him. He can call them at 888-681-3304 and they’ll take care of implementing this.

You don’t get ANY 1099s or other junk, your wages are simply lower on your W-2. I don’t know what’s going on in your boss’s office or if what he’s doing is illegal or just plain wrong. But he does need a better tax advisor.

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

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