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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hello, I am a co-owner of a small cooperative business (26

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I am a co-owner of a small cooperative business (26 co-owners). A couple of years ago we began using a HSA medical benefits plan, in which we made $1500 allocations into all owners' accounts, which at the time satisfied the deductible limit for all medical expenses, thus insuring no member/owner would have out-of-pocket medical expenses. Our provider has now increased their deductible limits. We would like to keep the same $1500 HSA amount contribution and reimburse members' medical expenses that exceed the HSA contribution to the point of the new deductible limit (where full coverage would kick in). Our question is: Are reimbursements for medical expenses (that are not a formal part of the original HSA contribution) considered income, and thus do we need to report such reimbursements as income for tax purposes? Thank you.

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.


If this was helpful please press the Accept button. Positive feedback is also appreciated.


Thank you JA Customer



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