Pre-Tax Preventive Care Reimbursement Arrangements

Texas educational employers should carefully examine salary reduction plans for health insurance premiums and medical expense reimbursement plans to determine if programs comply with the Internal Revenue Code.

Problems arise for certain programs that attempt to provide for tax-free reimbursement of amounts already excluded from taxable income. These programs may fall under a double-dipping provision that is strictly prohibited by Internal Revenue Ruling 2002-3. The Internal Revenue Service (IRS) identified problems with these types of programs and addressed the taxability of benefits paid under these programs in the 2017 Chief Counsel Advice Memorandum (CCA) 201719025.

The plans can be difficult to understand, and employers should work with an experienced employee benefits or tax attorney familiar with their circumstances to determine the legitimacy of the program.