Ideally you'd like to avoid picking up the income from the COBRA insurance payments because between income and payroll taxes, your husband is going to have to work a lot harder. Internal Revenue Service Publication 15-B discusses employer fringe benefits and their taxation. Under the topic of "accident and health plans" it states that the following treatment applies to employers:
The exclusion for accident and health benefits applies to amounts you (the employer) pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary.
However, in the case of your husband's former employer, they don't want to pay or reimburse you for the COBRA. Instead, they want your husband to work those hours and use those wages to pay for their health insurance. The best option for your husband would be to pay those COBRA premiums under a cafeteria plan, if the employer sponsors such a plan.
An employer receives a tax break for offering a cafeteria plan. The employer avoids payroll taxes on certain covered fringe benefits offered under the plan. Therefore, it is in the employer's best interest to offer a cafeteria plan to pay for COBRA in your husband's case.
If you can't get the employer to budge on the cafeteria plan, then your only option would be to itemize the COBRA payments with your other medical expenses to see if you get any tax benefit.
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