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Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3294
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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My husband received a severance package as part of an involuntary

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My husband received a severance package as part of an involuntary termination following a change of leadership. Part of the severance agreement was that the company would "reimburse the full cost of the premiums due for COBRA coverage". We have been paying for coverage, submitting receipts and receiving full reimbursement for the past 4 months. In August, we received a partial reimbursement and when we asked, "why?", the company told us that the premium payment was taxable and so federal/state income tax as well as social security, medicare, etc needed to be withheld. They indicated that September's reimbursement would reflect an "adjustment" for the taxes that were not withheld in the previous 4 months. After doing some google research as well as looking at IRS Pub 15, I think the reimbursement is not taxable. Am I correct?

Welcome. My name is XXXXX XXXXX it will be my pleasure to assist you with your tax question today.


You are correct. Specifically, Publication 15 states as follows:


"COBRA premiums. The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary."


Please let me know if you require further information or clarification.


Thank you and best regards,


Barbara and 2 other Tax Specialists are ready to help you

Hi, Kristin.


Just a short note to thank you for the "excellent" rating and very generous bonus. Both are most appreciated. If you have any questions in the future, please feel free to put "for bkb1956 or Barb" in the subject line, and I will be happy to assist you. Recommendations to family and friends are always also appreciated.


Thanks again, and best regards,