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Imputed Income
Tufts
Health Plan; Health
Reform Update, January 19, 2007
The changes coming with the implementation of Health Care Reform in the
state raise a number of questions, including calculating the fair
market value of benefits for employer contributions as it relates to
imputed income. While we cannot provide our clients with tax
or legal advice, we can offer our understanding of how the fair market
value is calculated as it respects imputed income. This
information is not intended as tax or legal advice, but is offered only
for your consideration in conjunction with that of your own counsel,
accountant, or tax.
It appears to be clear that the fair market value of employer
contributions for group health plan coverage for an
employee’s non-IRS code dependents are imputable taxable
income for the employee. And, payroll deductions for the
employee’s contribution must be taken on an after-tax
basis. There is, however, no formal guidance on how to
calculate the fair market value.
Please ask your counsel, accountant, or benefits consultant to discuss
alternative approaches they feel are appropriate for calculating the
fair market value. It is our understanding that a number of
employers use their COBRA rates (minus the 2% administrative add
on). They impute an individual rate for one non-IRS code
dependent; a two-person rate for 2 non-IRS code dependents; and a
family rate for 3 or more non-IRS code dependents.
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