Tax Facts

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Employee Benefits
Cafeteria Plans
Q 100 What is a cafeteria plan?

Q 101 What benefits may be offered under a cafeteria plan?

Q 102 What are the income tax benefits of a cafeteria plan?

Q 103 What nondiscrimination requirements apply to cafeteria plans?

Q 104 When can benefit elections under a cafeteria plan be changed?

Q 105 How are cafeteria plan benefits affected by the Family and Medical Leave Act?

Q 106 Are amounts received under a cafeteria plan subject to social security and federal unemployment taxes?

Q 107 Must an employer sponsoring a cafeteria plan file an information return for the plan with the IRS?

Q 108 What is a flexible spending arrangement?

Current Compensation
Q 109 What are the limitations on an employer’s deduction for compensation paid to an employee?
Q 110 What are “excess parachute payments” and how are they taxed?

Dependent Care Assistanced Programs
Q 134 What are the income tax consequences of an employer-sponsored dependent care assistance program?

Disability Income Coverage
Q 194 How is personal disability income coverage taxed?

Q 195 How is employer-provided disability income coverage taxed?

Employee Death Benefits
Q 135 If an employer is under contract to pay a death benefit to an employee’s surviving spouse, is the benefit taxable income to the surviving spouse?
Q 136 Is a contractual death benefit payable to a surviving spouse deductible by the employer?
Q 137 If an employer voluntarily pays a death benefit to an employee’s surviving spouse, is the benefit taxable income to the surviving spouse? Is it deductible by the employer?
Employee Stock Options
Q 130 What are employee stock options and how are they taxed?

Q 131 What is restricted stock?

Q 132 How is restricted stock taxed? How are dividends on restricted stock taxed?

Estate Taxation
Q 645 Are the proceeds of group term life insurance includable in insured’s estate?
Q 646 Is an accidental death benefit payable under a health insurance policy includable in the insured’s gross estate?
Q 647 Are medical expense reimbursement insurance proceeds received by the insured decedent’s estate includable in the gross estate?
Q 684 If an employer provides, under a nonqualified agreement or plan, an income benefit only for certain survivors designated by family or marital relationship to the employee, how is the benefit treated for estate tax purposes in the employee’s estate?
Q 685 Is the value of a survivor benefit payable by an employer under a nonqualified salary continuation or deferred compensation agreement includable in the employee’s gross estate?
Gift Taxation
Q 711 Are death-benefit-only (DBO) plans subject to gift tax?
Q 744 Does an employee covered under a survivor income benefit plan make a gift of the survivor benefit for federal gift tax purposes?
Group Life Insurance
Q 138 Starting Point – What are the tax benefits of employer provided group term life insurance?
Q 139 What is group term life insurance?
Q 140 Is term insurance provided to a group of fewer than 10 employees “group term insurance”?
Q 141 Are the premiums paid for group term life insurance deductible business expenses?
Q 142 Is the cost of group term life insurance coverage, provided by an employer, taxable income to an insured employee?
Q 143 Must group term life insurance provide nondiscriminatory benefits? How is group term life insurance taxed if the plan is discriminatory?
Q 144 Is the cost of employer-provided group term life insurance subject to social security tax?
Q 145 What information returns must an employer who maintains a group term life insurance plan file with regard to the plan?
Q 146 If an employer provides life insurance under a group term life insurance policy, what are the advantages of a group carve-out plan to the employees and the employer?
Q 147 May any part of the benefit under a policy be treated as group term life insurance if the policy also provides permanent benefits? If so, what part?
Q 148 How are dividends paid an employee under a policy that provides both permanent benefits and group term life insurance taxed?
Q 149 What is a retired lives reserve? Is the employee taxed on employer contributions to such a reserve? May the employer deduct contributions to the reserve?
Q 150 Is the cost of group permanent life insurance paid by an employer taxable income to the insured employee?
Q 151 Are the premiums that an employer pays on group permanent life insurance for its employees deductible by the employer?
Q 152 Are the death proceeds payable under group life insurance exempt from income tax?
Q 153 What is group survivor income benefit insurance?
Health Insurance
Q 154 Are premiums paid for personal health insurance deductible as medical expenses?

Q 155 Are the benefits received under a personal health insurance policy taxable income?

Q 156 If the benefits received for specific medical expenses exceed those expenses, must the excess be treated as reimbursement for other medical expenses?

Q 157 If an annuity is used to fund a judgment on or settlement of a claim for damages on account of personal injuries or sickness, how are the damage payments taxed?

Q 157.01 What is the penalty for an individual who chooses to remain uninsured?
Q 158 What requirements apply to employer-provided health plans?

Q 159 Is the value of employer-provided coverage under accident or health insurance taxable income to the employee?

Q 160 Are payments received by employees under employer-provided accident or health insurance taxable income?

Q 161 Are benefits provided under an employer’s noninsured accident and health plan excludable from the employee’s income?

Q 162 What nondiscrimination requirements apply to employer provided health benefits?

Q 163 How are amounts paid by an employer to highly compensated employees under a discriminatory self-insured medical expense reimbursement plan taxed?

Q 164 What are “domestic partnership” benefits, and how are they taxed?
Q 165 How are accident or health benefits taxed if they are provided by a closely held C corporation to its stockholder-employees only?

Q 166 How is health insurance coverage for partners, sole proprietors, and S corporation shareholders taxed?

Q 167 May an employer deduct the cost of premiums paid for accident and health insurance for employees as a business expense?

Q 167.01 What is the credit for employee health insurance expenses of small employers?
Q 168 What is a Health Reimbursement Arrangement (HRA) and how is it taxed?

Q 169 Are wage continuation payments under an accident and health plan subject to withholding?

Q 170 Is employer-provided “sick pay” subject to Social Security and federal unemployment tax?

Q 171 Must an employer who maintains an accident or health plan file an information return with respect to the plan?

Q 172 What notice must an employer who maintains an accident or health plan provide to Medicare-eligible individuals?

Q 173 What coverage continuation or “COBRA” requirements must certain group health plans meet?

Q 174 Are all employers subject to the COBRA continuation coverage requirements?

Q 175 What is a qualifying event for purposes of the COBRA continuation coverage requirements?

Q 176 What is meant by the term “gross misconduct”?

Q 177 How long must COBRA continuation coverage be provided?

Q 178 Who is a qualified beneficiary for purposes of the COBRA continuation coverage requirements?

Q 179 Who is a covered employee for purposes of the COBRA continuation coverage requirements?

Q 180 Who must pay the cost of COBRA continuation coverage and how is the cost calculated?

Q 181 What is the Health Coverage Tax Credit?

Q 182 When must an election to receive COBRA continuation coverage be made?

Q 183 What notice of COBRA continuation coverage is required?

Q 184 Which entity is responsible for providing COBRA continuation coverage following a business reorganization?

Q 185 What is the effect of noncompliance with the COBRA continuation coverage requirements?

Q 186 What portability, access, renewability, and coverage requirements must be satisfied by group health plans?

Q 187 What are the rules concerning preexisting condition exclusions under HIPAA ’96?

Q 188 What are the rules concerning discrimination based on health status under HIPAA ’96?

Q 190 What is the Guaranteed Renewability requirement?

Q 191 What rules apply to group health plan benefits provided to newborns and mothers?

Q 192 What penalties apply to a group health plan’s failure to meet the portability, access, and renewability requirements?

Q 193 Can health benefits be provided for employees under qualified pension and profit sharing plans?

Q 196 What is a Health Savings Account (HSA) and how can one be established?

Q 197 Who is an “eligible individual” for purposes of a Health Savings Account (HSA)?

Q 198 What is a “high deductible health plan” for purposes of a Health Savings Account (HSA)?

Q 199 What are the limits on amounts contributed to a Health Savings Account (HSA)?

Q 200 Must an employer offering Health Savings Accounts (HSAs) to its employees contribute the same amount for each employee?

Q 201 What is the penalty for making excess contributions to a Health Savings Account (HSA)? May excess contributions be withdrawn or reduced?

Q 202 How are funds accumulated in a Health Savings Account (HSA) taxed prior to distribution?

Q 203 How are amounts distributed from a Health Savings Account (HSA) taxed?

Q 204 Under what circumstances may an account owner transfer (roll over) funds into an HSA?

Q 205 Can an individual’s interest in a Health Savings Account (HSA) be transferred as part of a divorce or separation?

Q 206 What happens to a Health Savings Account (HSA) upon the death of the account holder? Can a surviving spouse continue the account?

Q 207 Are amounts contributed to a Health Savings Account (HSA) subject to Social Security taxes?

Q 208 Are employer contributions to a Health Savings Account (HSA) on behalf of an employee subject to withholding?

Q 209 What tax reporting requirements apply to a Health Savings Account (HSA)?

Q 210 What is an Archer Medical Savings Account (MSA) and how is it taxed?

Q 646 Is an accidental death benefit payable under a health insurance policy includable in the insured’s gross estate?
Q 647 Are medical expense reimbursement insurance proceeds received by the insured decedent’s estate includable in the gross estate?
Long-Term Care Insurance
Q 314 What is a qualified long-term care insurance contract?

Q 315 What are “qualified long-term care services”?

Q 316 How are long-term care contracts issued before 1997 treated?

Q 317 Are premiums paid for a qualified long-term care insurance contract deductible as medical expenses?

Q 318 May a self-employed individual deduct premiums paid for a qualified long-term care insurance contract?

Q 319 Are long-term care insurance premiums paid by an employer includable in income to the employees?

Q 320 May an employer deduct as a business expense the premiums paid for a qualified long-term care insurance contract for employees?

Q 321 Are benefits received under a qualified long-term care insurance contract taxable income?

Q 322 How is a long-term care insurance policy that is not a “qualified long-term care insurance contract” taxed?

Q 323 What reporting requirements are applicable to long-term care benefits?

Quick Clicks
Q 100 What is a cafeteria plan?

Q 101 What benefits may be offered under a cafeteria plan?

Q 102 What are the income tax benefits of a cafeteria plan?

Q 103 What nondiscrimination requirements apply to cafeteria plans?

Q 104 When can benefit elections under a cafeteria plan be changed?

Q 105 How are cafeteria plan benefits affected by the Family and Medical Leave Act?

Q 106 Are amounts received under a cafeteria plan subject to social security and federal unemployment taxes?

Q 107 Must an employer sponsoring a cafeteria plan file an information return for the plan with the IRS?

Q 108 What is a flexible spending arrangement?

Q 142 Is the cost of group term life insurance coverage, provided by an employer, taxable income to an insured employee?
Q 146 If an employer provides life insurance under a group term life insurance policy, what are the advantages of a group carve-out plan to the employees and the employer?
Q 149 What is a retired lives reserve? Is the employee taxed on employer contributions to such a reserve? May the employer deduct contributions to the reserve?
Q 168 What is a Health Reimbursement Arrangement (HRA) and how is it taxed?

Q 173 What coverage continuation or “COBRA” requirements must certain group health plans meet?

Q 174 Are all employers subject to the COBRA continuation coverage requirements?

Q 175 What is a qualifying event for purposes of the COBRA continuation coverage requirements?

Q 176 What is meant by the term “gross misconduct”?

Q 177 How long must COBRA continuation coverage be provided?

Q 178 Who is a qualified beneficiary for purposes of the COBRA continuation coverage requirements?

Q 179 Who is a covered employee for purposes of the COBRA continuation coverage requirements?

Q 180 Who must pay the cost of COBRA continuation coverage and how is the cost calculated?

Q 181 What is the Health Coverage Tax Credit?

Q 182 When must an election to receive COBRA continuation coverage be made?

Q 183 What notice of COBRA continuation coverage is required?

Q 184 Which entity is responsible for providing COBRA continuation coverage following a business reorganization?

Q 185 What is the effect of noncompliance with the COBRA continuation coverage requirements?

Q 514 What is the exception for a welfare benefit fund that is part of a 10 or more employer plan?

Q 516 What is a “501(c)(9) trust” (VEBA)?

Q 517 What benefits can a 501(c)(9) trust (VEBA) provide?
Q 518 Are an employer’s contributions to a 501(c)(9) trust (VEBA) deductible?
Q 519 How are contributions to and benefits payable under 501(c)(9) trusts (VEBAs) taxed to participants?
Welfare Benefit Funds
Q 505 Starting Point – May an employer make deductible contributions to a welfare benefit fund to provide medical, disability and life insurance benefits (including postretirement medical and death benefits) for employees and independent contractors?
Q 506 When is a deduction allowed for contributions to a welfare benefit fund?
Q 507 What is the limit on the amount an employer may deduct for contributions to a welfare benefit fund to provide disability, medical, death and other benefits to employees and independent contractors?
Q 508 What are the tax consequences to the employer and to the welfare benefit fund if the employer contributes excess amounts to the fund?
Q 509 What income of a tax-exempt welfare benefit fund is taxable as unrelated business taxable income?

Q 510 If postretirement medical or life insurance benefits are provided to a key employee through a welfare benefit fund, what special rules apply?
Q 511 Must a welfare benefit fund providing postretirement life insurance or medical benefits meet nondiscrimination requirements?
Q 512 What is the penalty for providing certain “disqualified benefits” through a welfare benefit fund?
Q 513 Must a tax-exempt welfare benefit fund apply for recognition of its tax-exempt status?
Q 514 What is the exception for a welfare benefit fund that is part of a 10 or more employer plan?

Q 515 What is a single employer plan? How are abusive arrangements treated?
Q 516 What is a “501(c)(9) trust” (VEBA)?

Q 517 What benefits can a 501(c)(9) trust (VEBA) provide?
Q 518 Are an employer’s contributions to a 501(c)(9) trust (VEBA) deductible?
Q 519 How are contributions to and benefits payable under 501(c)(9) trusts (VEBAs) taxed to participants?