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IRS draws a bead on fixed indemnity plans

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in Office Management,Payroll Management

Fixed indemnity plans pay employees a set amount of cash for, say, going to the doctor or participating in a health risk assessment. The IRS has now concluded that fixed indemnity plan benefits are fully taxable if the average amount employees receive predictably exceeds their after-tax contributions. (ILM 201719025)

Risky business. According to the IRS, the key to excluding fixed indemnity plan benefits from employees’ income is that there is an insurance risk—that is, there is adequate risk shifting from one party to another. In neither of the two following examples was there adequate risk shifting; the expenses were likely to be incurred and they weren’t subject to an actuarial evaluation.

Example. AlBee, Inc. has a major medical plan and a self-insured fixed indemnity plan. Employees who participate in the indemnity plan contribute $60 a month in after-tax dollars, but receive $1,425 per activity (e.g., calling a...(register to read more)

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