Using a bonus system?

[Guest]

If a small employer with several full-time people wants to help in the healthcare of their people but does NOT want to get group, TTBOMK the boss cannot say "OK, people send me the bill for your private plans and I'll send a check to your insurance company."

However it is legal for him to give a bonus check to each employee and say "Here is some money. I want you to use it for your health insurance, but it's up to you."

Does he/she have to give each employee the exact same bonus amount? Or can he give Mary $2300 to pay Blue Cross and Billy $1500 to pay Aetna, and Susie $7200 to pay KP? And can he decide he does not want to give YOU anything?

Al

 

[somarco]

Boss can set up a MERP (medical expense reimbursement plan) to fund the out of pocket expenses of employees. The plan must be non-discriminatory and should be administered by someone other than the boss. There are also HIPAA privacy issues that need to be addressed.

If boss does anything other than this it is considered payroll and goes through the tax machine.

 

[arnguy]

What may be applicable in this case, al3, is an IRS Sec. 125 Plan a/k/a
a Cafeteria Plan. It gives a tax break to both the employer and the employees. The employer saves on Social Security contributions. I will go into more detail, if you are interested, on Monday (tomorrow). It is tequila time here on the East Coast, so I don't want to get into any esoteric subjects this evening. Have a nice day.

 

[Delta76]

I do equal bonuses, although I would discriminate if there was proof that it was acceptable. For example, employer bonuses $200 per employee per month as an "employee benefit bonus." The $200 is considered taxable income and the employee can choose to spend it any way he or she desires. The employer then sets up an individual premium reimbursement plan (limited benefit 125 plan) for about $250 one time fee to draft the document. The employees elect to withhold the amount of their premiums and HSA contributions from their paychecks on a pre-tax and no FICA basis, therefore eliminating the taxes on that $200 bonus if they choose to purchase outside coverage. I usually suggest a 3rd party administer it for $5 per employee per month, however, some small shops choose to do it themselves.

Advantages:
-Fixed cost for employer
-No huge rate increases due to claims during the year
-Portable coverage for the employee
-Usually large cost savings

Disadvantages:
-$200 goes alot further for a 20 year old than a 60 year old
-employees not currently on employer group plan are eligible for a bonus
-more administration
-not everyone can qualify for private coverage (state risk pool laws come into play)

This is a niche solution, usually works best for small employers under 10 employees that are relatively healthy and of similar ages or more often, an employer that doesn't want or can't afford a group plan, but still wants to help out his employees.

 

[bcbroker]

it is illegal in Ohio

 

[slushhhpuppie]

Not a bonus, a healthcare reimbursement stipend.

I have a CPA client who does this with his office staff. Everyone gets an even $300 check (not included in regular salary). Fully deductible him, and fully legal (in Pennsylvania, at least).

What's Ohio's beef with it?

 

[LGilmore]

I think the poster's just talking about who pays the premium. Any employer can decide not to provide benefits, but can via payroll provide a "bonus" to an employee if he has provisions for such. The employee can choose to use it for healthcare or lotto tickets.. Employer loses control of the money once he/she gives it out.

Don't make it harder than it is.

 

[slushhhpuppie]

I think the poster's just talking about who pays the premium. Any employer can decide not to provide benefits, but can via payroll provide a "bonus" to an employee if he has provisions for such. The employee can choose to use it for healthcare or lotto tickets.. Employer loses control of the money once he/she gives it out.

Don't make it harder than it is.

No, not via payroll. Putting it through payroll means its taxed, on both sides. I'm talking about a handwritten check from the company to the employee.

The employer's liability ends when he hands over the check. If the employee chooses not to apply the money towards its stated purpose (health insurance) then it's their neck out to the IRS for not reporting the income.

 

[LGilmore]

"no, not via payroll."

Then the business may not be able to write off as an expense. Depending on the business set up and I'd have to go look it up, couldn't it be considered a "dividend" and corp taxes due? If the business owner pays it out of pocket, he'll be paying the tax on it. Why wouldn't he run it through payroll?

Nothing wrong with running it through payroll and having ee pay taxes on it.

 

[djs]

No, not via payroll. Putting it through payroll means its taxed, on both sides. I'm talking about a handwritten check from the company to the employee.

The employer's liability ends when he hands over the check. If the employee chooses not to apply the money towards its stated purpose (health insurance) then it's their neck out to the IRS for not reporting the income.

Of course, I believe the employee would have to pay taxes on it even if they used it for health insurance. And of course, unless its a reimbursement for a business expense, the employer would have to pay payroll taxes on it as well.

Basically, however you write the check, it is part of payroll when you are providing it to the employee.

Much easier just to write group.

Dan