Home Page link  

taxability of cash-in-lieu?

  
Groups | Search | About
User Password
Register Now! Lost Password?

Taxes General Forum - Tax professionals meeting place and answers to queries. (Moderated)

 Post an article  get this group's latest topics as an RSS feed add this group's latest topics to your My MSN content add this group's latest topics to your My Yahoo content  add this group's latest topics to your Google content  YahooMyWeb Yahoo!  Google Google  Windows Live Favorites Windows Live  del.icio.us del.icio.us  digg digg  Add to Netscape Netscape
Subject Author Date
taxability of cash-in-lieu? cagauss 04-19-2006
Posted by cagauss on April 19, 2006, 12:38 am
Please log in for more thread options
 My wife declines medical insurance benefits offered by her
employer because she is covered as my spouse under my
employer's plan. Her employer pays her $2000 per year as a
substitute for this benefit, not reported on W-2 but on a
1099-MISC, not subject to withholding. The medical benefit
is of course not a taxable benefit. But is the cash-in-lieu
taxable? How should that be reported?

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Rich Carreiro on April 20, 2006, 3:24 pm
Please log in for more thread options
> My wife declines medical insurance benefits offered by her
> employer because she is covered as my spouse under my
> employer's plan. Her employer pays her $2000 per year as a
> substitute for this benefit, not reported on W-2 but on a
> 1099-MISC, not subject to withholding. The medical benefit
> is of course not a taxable benefit. But is the cash-in-lieu
> taxable? How should that be reported?

Yes it is taxable. How to report it is more interesting.
In my mind it should have been reported on her W-2 (so it
looks like her employer is trying to rip her off a tad by
trying to foist the employer half of FICA on that money off
on her), which is how I've seen it in cases where I've seen
this sort of thing.

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Stuart A. Bronstein on April 23, 2006, 1:24 am
Please log in for more thread options

>> My wife declines medical insurance benefits offered by her
>> employer because she is covered as my spouse under my
>> employer's plan. Her employer pays her $2000 per year as a
>> substitute for this benefit, not reported on W-2 but on a
>> 1099-MISC, not subject to withholding.

> Yes it is taxable. How to report it is more interesting.
> In my mind it should have been reported on her W-2 (so it
> looks like her employer is trying to rip her off a tad by
> trying to foist the employer half of FICA on that money off
> on her), which is how I've seen it in cases where I've seen
> this sort of thing.

What I might do is to put the money into a tax-exempt health
savings plan. That way it won't be taxed, and you can use
it for deductibles and other health related expenses your
insurance policy might not cover.

Stu

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by cagauss on April 23, 2006, 1:43 am
Please log in for more thread options
The effect is de minimus. She is already over the max for
Social Security tax, so only medicare would be owing. This
is not the reason they did it this way. I sense it was more
to do her a favor ... and keep it off the W2. The 1099-MISC
was handwritten with her name and address, with no SSN
showing (technically a violation, I believe). Of course no
comment or advice was provided, I suspect intentionally.

My question really was not how should the payer report it.
But where should it be reported on Form 1040 (if we choose
to report it)? It is not wages, salaries, tips, etc. Maybe
the "Other income " line (Line 21 for 2005)?

... Fred

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Rich Carreiro on April 24, 2006, 10:35 am
Please log in for more thread options

> My question really was not how should the payer report it.
> But where should it be reported on Form 1040 (if we choose
> to report it)?

What do you mean "if we choose to report it"? You are
required to report it. Though if you want to admit
publically that you are planning to be a tax cheat, that's
your choice.

> It is not wages, salaries, tips, etc. Maybe
> the "Other income " line (Line 21 for 2005)?

It *is* wages.

The form that income is reported on does not control the
character of the income. That the employer reported wage
income on a 1099-MISC instead of a W-2 doesn't magically
make it non-wage income. The fact that your wife is an
employee of the imployer makes it wage income, regardless of
how the employer reported it.

If the employer had reported it the way is supposed to be
reported (i.e. on the W-2), then Medicare tax would have
been paid on it by you and the employer. So I would argue
the only proper way to report this is in such a way that at
least you pay your share of medicare tax on it. That could
be Sched C. It also could be by using the "Unreported Tips"
form, where you cross out "Tips" everywhere it appears on
the form and write in "Wages" (I believe someone in this
very group mentioned that in the past couple of weeks).

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Similar ThreadsPosted
Taxability of distributions from a non-qualified annuity January 26, 2007, 5:58 am
Inherited Annuity Taxability and Handling April 13, 2007, 11:48 pm
Taxability of payment from a Qualified Settlement Fund (QSF) for mutual fund fraud April 28, 2007, 5:03 pm

Contact Us | Privacy Policy
This site is not affiliated with Intuit - makers of Quickbooks and Quicken software
This site is not affiliated with Sage Software - makers of Peachtree accounting software
XML SitemapXML Sitemap