Insurance rebate nets term benefit and whole life tax

Article Abstract:

The Tax Court judged that the kickback to the taxpayer of premiums on whole life insurance can be considered as compensation for participating in an unlawful activity. In 'Wentz,' the taxpayer's friend, who is an associate licensed insurance agent, enjoined the taxpayer in a plan that offered free insurance for one year. The taxpayer would buy a whole life policy through the friend and pay the premium for the first year, after which the friend would remit the premium to the taxpayer. Because the insurance companies gave a commission of 115% of the first year premium, the friend made a profit even after the kickback. The taxpayer did not renew the policies which lapsed after the premium for the second year was not paid. The taxpayer argued that the kickbacks were merely a deduction in the acquisition price of the policies. The Tax Court eventually rejected this argument.

Insurance, Insurance Carriers and Related Activities, INSURANCE CARRIERS, Taxation, Rebates

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Reduced salary for health insurance is not wages

Article Abstract:

The district court's decision on 'Express Oil Change Inc.' has clarified that salary reductions for employees who elected health insurance coverage do not qualify as wages subject to FICA tax or income tax withholding. The case involved a company who offered its employees a health plan in exchange for reduced salaries. However, the salary reduction did not necessarily equal the premium that the firm paid for each participating employee. While employers' payments for the medical or hospitalization costs of their employees are considered excludable from wages for purposes of FICA tax under Sec. 3121(a)(2), the IRA maintains that the exclusion is applicable only if the health plan is a supplement to salaries. It does not apply when the plan is funded by money deducted from employees' salaries.

Health insurance, Wages, Wages and salaries

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Plan participant is 'active' although no benefit

Article Abstract:

The Tax Court found in the 'Madioni' case that a taxpayer was an active participant in a retirement scheme and therefore disqualified to contribute to an individual retirement account (IRA) despite the forfeiture of her benefit before yearend. The court based its decision on the legislative history of the existing restraints on IRA contributions by active participants in employer programs. It shows that an individual actively participates in a defined benefit plan if that person meets the eligibility requirements for any section of the plan year that ends within the tax year even when no accrual of benefit takes place. The court also relied on earlier cases which considered an employee an active participant for a plan year in which the person forfeited the employer's contribution.

Individual retirement accounts, Defined benefit plans

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