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LawTalk, Attorney
Category: Employment Law
Satisfied Customers: 34902
Experience:  30 years legal experience and I keep current in Employment Law through regular continuing education.
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I signed a separation agreement with my former employer which

Customer Question

I signed a separation agreement with my former employer which included two months of salary (minus applicable taxes) and under a separate heading six months of COBRA coverage for continuation of health insurance benefits. The COBRA section doesn't mention taxes. BOTH the salary and the COBRA amount was paid to me in one lump sum and taxed at the higher rate. I expected the salary to be taxed at the higher rate because there would be none of the standard deductions that I had previously to offset my tax liability. However, by taxing the COBRA amount too, it effectively decreased the amount paid to me for my health insurance continuation by $587. Should the COBRA amount have been taxed when there was no mention of taxes in that section of the agreement? The intention was to provide six months of coverage but realistically, with the tax deduction, I can now only pay for four. Also, the separation agreement also specified that my previous employer would pay six months of HSA contributions. They contributed that full amount - no taxes withheld - directly to my HSA account. Why is HSA money treated differently for taxes?
Submitted: 5 months ago.
Category: Employment Law
Expert:  LawTalk replied 5 months ago.
Good evening,I'm Doug, and I'm sorry to hear of the confusion. My goal is to provide you with excellent service today. Payment contributions made for health insurance by both the employer and employee are typically pre-tax contributions. However, when the employer paid you a lump sum as part of a severance package, all of that payment is taxable to you. That is simply the way the tax laws are structured. Had the employer kept you on the employer health policy and paid your premium monthly that would have been tax free. But COBRA is a separate policy---not the employer's health policy and that money is not tax free. As for the HSA money, because you still have an HSA, that deposit by the employer is not taxed either. HSA funds are pre-tax funds so long as they are deposited directly by the employer to the HSA. I understand that you may be disappointed by the Answer you received, as it was not particularly favorable to your situation. Had I been able to provide an Answer which might have given you a successful legal outcome, it would have been my pleasure to do so.If you have additional questions, you may of course reply back to me and I will be happy to continue to assist you further until your questions have been answered to your satisfaction.Would you please take a moment to positively rate my service to you based on the understanding of the law I provided by clicking on the rating stars---three stars or more. It is that easy. That is the way I am compensated for having helped you.Thank you in advance. I wish you the best in your future,Doug
Expert:  LawTalk replied 5 months ago.
Good evening,Do you have any additional questions that you would like me to address for you?In case you would like a phone call to further discuss these issues you have raised, I will make that offer to you. You are certainly not obligated to accept a call offer, but many people do find it helpful for clarification purposes, as well as to allow them to ask additional questions.As I have provided you with the information you asked for, would you please now rate my service to you so I can be compensated for assisting you?Thanks in advance,Doug

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