We pay medical insurance premiums for our retired Board Members (we are a co-op). Should we report the insurance premiums in box 3?

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Q. (cont.) All of these board members are over the age of 65 and receiving social security benefits. I was told that if we report these premiums in box 7, they would have to pay social security tax. We also pay our acting board members’ insurance. Should we report this in box 7, as they are current board members? This is where we report their per diem/meeting compensations as well.

A. Directors' income should be reported on Form 1099-MISC in box 7, as you indicate. We spoke with Ms. Janneh at the IRS (# 1003078859), who stated she did not believe reporting health insurance premium reimbursements in box 3 was appropriate. The IRS Instructions for Form 1099-MISC cite ""taxable fringe benefits for non-employees"" as income reportable on line 7. While health insurance premiums are not taxable to employees, it is inconclusive as to whether they are taxable and/or reportable for contractors.

We consulted with IRS reporting specialist Ms. D'Angelo (#1001306043) concerning payment for health insurance premiums for your board members, both current and retired.

The determiner here is whether the benefits are part of an accountable plan. According to IRS Publication 463, the expense must be accounted for with a receipt or other proof of payment, whether you paid the health insurer directly or whether you remitted a sum to the board member and s/he paid it directly. As long as you have documented proof that the amount paid to the insurer is no more than the amount given the board member for that purpose, this is not reportable on a 1099.

If, on the other hand, you gave all board members a monthly stipend of say $1,000, and this was not documented as having been spent on health insurance premiums, then this would be reportable in box 7 of 1099-MISC.

 

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