Publication 15-B - Employer'S Tax Guide To Fringe Benefits - 2012 Page 7
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33Accident and Health Benefits
exclusion from gross income if the other requirements for
exclusion are met. See section 105(j) for details.
This exclusion applies to contributions you make to an
Exception for S corporation shareholders. Do not
accident or health plan for an employee, including the
treat a 2% shareholder of an S corporation as an employee
following.
of the corporation for this purpose. A 2% shareholder is
•
someone who directly or indirectly owns (at any time dur-
Contributions to the cost of accident or health insur-
ance including qualified long-term care insurance.
ing the year) more than 2% of the corporation’s stock or
stock with more than 2% of the voting power. Treat a 2%
•
Contributions to a separate trust or fund that directly
shareholder as you would a partner in a partnership for
or through insurance provides accident or health
fringe benefit purposes, but do not treat the benefit as a
benefits.
reduction in distributions to the 2% shareholder.
•
Contributions to Archer MSAs or health savings ac-
counts (discussed in Publication 969, Health Sav-
Exclusion from wages. You can generally exclude the
ings Accounts and Other Tax-Favored Health
value of accident or health benefits you provide to an
Plans).
employee from the employee’s wages.
Exception for certain long-term care benefits. You
This exclusion also applies to payments you directly or
cannot exclude contributions to the cost of long-term care
indirectly make to an employee under an accident or health
insurance from an employee’s wages subject to federal
plan for employees that are either of the following.
income tax withholding if the coverage is provided through
•
Payments or reimbursements of medical expenses.
a flexible spending or similar arrangement. This is a benefit
•
program that reimburses specified expenses up to a maxi-
Payments for specific injuries or illnesses (such as
mum amount that is reasonably available to the employee
the loss of the use of an arm or leg). The payments
and is less than five times the total cost of the insurance.
must be figured without regard to any period of ab-
However, you can exclude these contributions from the
sence from work.
employee’s wages subject to social security, Medicare,
and federal unemployment (FUTA) taxes.
Accident or health plan. This is an arrangement that
S corporation shareholders. Because you cannot
provides benefits for your employees, their spouses, their
treat a 2% shareholder of an S corporation as an employee
dependents, and their children (under age 27) in the event
for this exclusion, you must include the value of accident or
of personal injury or sickness. The plan may be insured or
health benefits you provide to the employee in the em-
noninsured and does not need to be in writing.
ployee’s wages subject to federal income tax withholding.
Employee. For this exclusion, treat the following individu-
However, you can exclude the value of these benefits
als as employees.
(other than payments for specific injuries or illnesses) from
•
A current common-law employee.
the employee’s wages subject to social security, Medicare,
and FUTA taxes.
•
A full-time life insurance agent who is a current stat-
Exception for highly compensated employees. If
utory employee.
your plan is a self-insured medical reimbursement plan
•
A retired employee.
that favors highly compensated employees, you must in-
•
A former employee you maintain coverage for based
clude all or part of the amounts you pay to these employ-
on the employment relationship.
ees in their wages subject to federal income tax
withholding. However, you can exclude these amounts
•
A widow or widower of an individual who died while
(other than payments for specific injuries or illnesses) from
an employee.
the employee’s wages subject to social security, Medicare,
•
A widow or widower of a retired employee.
and FUTA taxes.
•
A self-insured plan is a plan that reimburses your em-
For the exclusion of contributions to an accident or
ployees for medical expenses not covered by an accident
health plan, a leased employee who has provided
or health insurance policy.
services to you on a substantially full-time basis for
at least a year if the services are performed under
A highly compensated employee for this exception is
your primary direction or control.
any of the following individuals.
•
One of the five highest paid officers.
Special rule for certain government plans. For cer-
•
An employee who owns (directly or indirectly) more
tain government accident and health plans, payments to a
than 10% in value of the employer’s stock.
deceased plan participant’s beneficiary may qualify for the
Publication 15-B (2012)
Page 7
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