New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

George Saenz, the Bankrate.com Tax Talk columnistHealth-care help set up incorrectly

Dear Tax Talk,
We have group health insurance available at my work. My employer offers employees full coverage. He pays $304 a month per employee. We can add our family but it was way too much. I opted to stay with my current health care, which I can afford.

In turn my employer agreed to put $152 per pay period on my paycheck to go toward my own health insurance. By doing this he added it to my gross income, which means that not only am I being taxed on this money, it looks like this affects my return. Can I subtract this money from my adjusted gross income and take it as a credit?
-- Jeff

- advertisement -

Dear Jeff,
It clearly affects your return as it is additional income included in your Form W-2. You and your employer are the victims of being ill-advised. The employer is paying payroll taxes unnecessarily, and you're paying payroll and income taxes unnecessarily. But this is happening because you're both going about it all wrong.

An employer can establish a health reimbursement arrangement that is tax-free to the employee and on which the employer also avoids payroll taxes. An HRA is like a cafeteria plan, but less formal. However, there are some important rules that an employer must follow regarding discrimination in favor of highly compensated or key employees and qualified reimbursements so that the arrangement is respected by the Internal Revenue Service. Health savings accounts and other tax-favored health plans are discussed in Publication 969.

Bankrate.com's corrections policy-- Posted: Feb. 7, 2006
Read more Tax Adviser columnsAsk a question
 RESOURCES
Employer should spring for cafeteria plan
Deducting private health insurance
Paying for my own health care plan
 TOP TAX STORIES
June 15 filing deadline for some
Find the tax professional who's right for you
Coming up with tax cash


Compare Rates
NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 4.45%
48 month new car loan 3.77%
1 yr CD 0.89%
Rates may include points
Mortgage calculator
See your FICO Score Range -- Free
How much money can you save in your 401(k) plan?
Which is better -- a rebate or special dealer financing?
VIEW MORE CALCULATORS
- advertisement -
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.