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I am retired and part of my retirement package was to have…

I am retired and...

I am retired and part of my retirement package was to have cash to purchase my COBRA from my employer. How is it best to receive this payment 1099 would require me to pay all the taxes. Is there a better way?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

I was able last year to have the money deposited in my 401(k) as part of my separation. Since I am no longer employed that can not happen this year. I am afraid the tax hit will be about 35% of the $12000 I would receive.

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Answered in 17 minutes by:
1/2/2018
Chad EA, CFP ®
Chad EA, CFP ®, Enrolled Agent
Category: Tax
Satisfied Customers: 1,381
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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Welcome to JustAnswer!

My name is***** will assist you today.

To be taxed at 35% your adjusted gross income as a single filing tax payer would need to be above $200,000.

____

If an employer chooses to implement a practice of paying COBRA premiums, below are several ways to process these payments:

  • COBRA premiums may be paid to the employee, and the employee would pay the insurance company directly. Since there is no guarantee that the employee will use the funds to pay the premiums, the funds are considered wages and subject to applicable taxes.
  • An employer may reimburse premium payments the employee made directly to the insurance company. The employee must provide the employer with documentation verifying that payments to the insurer were made for the payments to be nontaxable and excluded from wages.
  • An employer may pay the premiums directly to the insurance company. These funds are nontaxable to the employee and excluded from wages.
  • An employer may provide funds for premiums under a severance plan. If the employer deducts the premiums from the severance pay and pays the insurer directly, the funds are excluded from wages and are nontaxable. If the employee receives the funds and can provide supporting documentation of the payment to the insurer, the funds are also nontaxable. If there is no verification that the employee used the funds to pay for the premiums, the amounts are included in wages and are taxable.

According to the IRS Employer’s Tax Guide to Fringe Benefits, “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.” Additional information on this topic can be found in an April 24, 2006, IRS Information Letter.

Here is an additional link for your reference:

https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/canwepayforaformerorcurrentemployeescobracoverage.aspx

Ask Your Own Tax Question

2018 Tax Brackets

Single Tax Payer

$0- $9,525 10%

$9,925- $38,700 12%

$38,701- $82,500 22%

$82,501 - $157,500 24%

$157,501 - $200,000 32%

$200,001 - $500,000 35%

$500,000 - + 37%

____

If you have any additional questions at all please let me know!

My goal is to ensure you receive 100% satisfaction.

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Chad EA, CFP ®
Chad EA, CFP ®, Enrolled Agent
Category: Tax
Satisfied Customers: 1,381
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
Verified
Chad EA, CFP ® and 87 other Tax Specialists are ready to help you
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Chad EA, CFP ®
Chad EA, CFP ®
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Category: Tax
Satisfied Customers: 1,381
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