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Hello JA Customer,
The payments you make directly to an employee under a plan you have to cover them for medical expenses is not reported to the employee as taxable income.
You can refer to IRS Publication 15-B which addresses fringe benefits. Under the section that covers Accident and Health Benefits it specifically states the following as being non taxable to the employee:
This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following.
Payments or reimbursements of medical expenses.
Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). The payments must be figured without regard to any period of absence from work.
Your proposed reimbursement fall in this category, and would not be treated as taxable income to the employee.
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Thank you JA Customer