Travel for Medical

[BobKamman]

Let’s say you live in Texas or Mississippi and need a medical procedure that is not available in your state. So you travel to New York, and your employer (for example, Amazon or Tesla) pays for the travel.

IRS tells us in Pub 502,

“You can include in medical expenses amounts you pay for transportation to another city if the trip is primarily for, and essential to, receiving medical services. You may be able to include up to $50 for each night for each person. You can include lodging for a person traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Meals aren't included.”

Does the employer have to include the travel reimbursement as taxable wages? All of it, or just the part for lodging more than $50, and meals?

[dkh]

I feel this is a trick question, especially since it is coming from you Bob.  However, I'm feeling pretty good this Monday morning so I'm going to throw in my answer.

I think the employer should include all of what they reimbursed as taxable wages.  Wouldn't the company paying for this be considered a taxable fringe benefit?      The amount the employee might be able to deduct on their taxes shouldn't factor into what is considered taxable.

[IRonMaN]

It's always a trick question with Bob.  He waits for someone to bite and then sets the hook and reels you in.  Which isn't so bad, but on those days that he uses the gaff hook .................. that hurts.

[dkh]

I'm wearing my suit of armor this morning...  I heard someone whisper that when I walked by ....funny how it almost sounded like they said that's some sweet odor ......  

[BobKamman]

Not a trick question.  Just trying to anticipate the next battle in the religious and political war.  Mr. Google led me this morning to Qualified Small Employer Health Reimbursement Arrangements (QSEHRA).  But they won't work for large employers.

I also learned that, at least in the land of 10,000 lakes and a billion mosquitoes, It is illegal for an employer that has workers’ compensation insurance to directly pay medical bills on a workers’ compensation claim. Medical bills are required to be paid by the employer’s workers’ compensation insurer. An insured employer that pays bills directly is partially self-insuring the claim.

I found an interesting and current article about MERPs and HRAs here:

https://blog.kbibenefits.com/guide-to-reimbursement-of-medical-expenses-by-employer

A local city makes monthly MERP payments to many of its retirees, of a flat $202 monthly.  If the employees submit an annual statement that the money was spent on medical costs (including insurance premiums) it is not taxable.  They also had to declare at time of retirement that they would be doing that.  I had as clients, a married couple who were both retired from the same city.  One was receiving the MERP tax-free and the other was getting a W-2 for it, until we straightened the mess out. 

Meanwhile, an HRA requires documentation of specific expenses, but allows a tax deduction for the private employer and no tax bill for the employee.  

I'm not a good source on fringe benefits, especially now that most of my clients are retired.  

 

[qbteachmt · Accepted solution]

I'm pretty good at fringe benefit plans and tax treatment through payroll. Although this topic has a bit of a roaming range, I can take a stab at some of it.

"Does the employer have to include the travel reimbursement as taxable wages? All of it, or just the part for lodging more than $50, and meals?"

That Pub 502 quote and this question as posed are confusing employer medical reimbursement provisions under an employer health reimbursement provision and the tax regulation allowance for medical travel, which is an individual's provision and doesn't require there be an employer involved at all. Different provisions.

"Meanwhile, an HRA requires documentation of specific expenses, but allows a tax deduction for the private employer and no tax bill for the employee."

Exactly. The employer is acting as if they are the FSA/HSA, in other words.

The reason the employer should not pay for anything that falls under worker comp is to prevent the liability complexity that is typical for insurance coverage issues. That is not a tax issue but an exposure issue. Some States allow private insurers to offer WC and some operate it through the State, and in neither case do they want to find out an employer was hiding a potential claim by offering to pay out of pocket.

As individuals, we can repair our vehicle or submit it to insurance, for example, and no one else will be disadvantaged. The WC process can come back into consideration later, when the employee files a claim after all, and the insurers want to control all aspects of a claim or negotiation. I'd have to do the research, but I believe this goes back to the extractive resource industry (coal, metals) and the payoffs for not reporting on the job injuries (mine safety and health or MSHA, which is like OSHA).

[joshuabarksatlcs]

1. Not a trick question. 

2.  Just trying to anticipate the next battle in the religious and political war.  

1.  I was going to take a stab at this even if this was a trick question, @IRonMaN 's warning notwithstanding.   If @IRonMaN was correct, in my sheer imagination or recollection, @BobKamman 's M.O. was to hook and reel after TWO bites.  @qbteachmt 's was the first.  Here cometh the second.

2.  Honestly I have NO idea what "the religious and political war" is all about.  I'm the kind who would begin to think about "investing" in Bitcoin after it hit $45K...

I agree with@qbteachmt that "That Pub 502 quote and this question as posed are confusing employer medical reimbursement provisions under an employer health reimbursement provision and the tax regulation allowance for medical travel, which is an individual's provision and doesn't require there be an employer involved at all."

That part of Pub 502 clarifies "Transportation" further.  Reg 1.213-1(e) (1)(iv) is very brief.  That part of Pub 502, for example, caps the out of town stay at $50 per night, and echoes the "spirit" of the Regs.

An MERP is not a section 125 plan, cafeteria plan, or flexible spending account.  Rather, it is a section 105 plan, like a health reimbursement arrangement (HRA).

Regs. 1.105-11(b)(1)(i):

(b) Self-insured medical reimbursement plan

(1) General rule --

(i) Definition. A self-insured medical reimbursement plan is a separate written plan for the benefit of employees which provides for reimbursement of employee medical expenses referred to in section 105(b). 

Those are sometimes referred to as "Section 105 Plan".  Notice how the Regs REQUIRE a separate written plan.  

Thus, you may have two companies, one with and the other without, a separate written plan, to have different treatments on medical reimbursements.  Actually, upon audit, the treatment (for both the company and the employee i.e. wages levels) on the reimbursements made by a company WITHOUT a written plan  will be at the mercy of the auditor.  I imagine the deductibility by the company would likely be subject to the "ordinary and necessary" tests, and the reimbursements would be taxable to the employee as wages.  

Going back to Bob's original post as drafted, my take is that the answer would hinge on whether the company has a SEPARATE WRITTEN PLAN.

If NO:  Possible deduction by company.  Taxable to employee as wages - all of it - as taxable fringe benefits.

If YES: You'd have to look at the plan document. 

If the document allows X dollars per night of out of town stay, then up to X dollar would be non-taxable fringe benefits for the employee.  X would be capped at $50, because the Regs allow only $50. 

If the document allows reimbursement of airfare, it'd be nontaxable fringe benefits there again.  (Likely subject to the "reasonableness test" - e.g. NO first class to Japan even if other requirements for a medical trip to Japan are satisfied.  Likewise, NO flight by the Concorde to Paris etc. )

If the document allows Y cents per mile for driving, again nontaxable fringe benefits, with Y capped at the applicable IRS medical mileage.   

Now, do enlighten me about the "religious and political War".

[joshuabarksatlcs]

Oh, BTW, I'm also the kind who don't know Concorde ain't flying to Paris no more.

[dkh]

Let’s say you live in Texas or Mississippi and need a medical procedure that is not available in your state. So you travel to New York, and your employer (for example, Amazon or Tesla) pays for the travel.

If these large businesses (for example, Amazon or Tesla) have onsite medical clinics (which I'm imagine they do) would it really be necessary for the employee to travel to New York for this medical procedure? ?????

[qbteachmt]

"If these large businesses (for example, Amazon or Tesla) have onsite medical clinics"

OMG, I forgot those existed. Where I worked, one of the security/medical people had lost weight eating cereal for all meals. They held forced attendance meetings for us under "health training" where we all had to listed to how his miraculous weight loss program involved eating only cereal, every meal. And any time you stopped into the medical office, the doctor was out, so the security guards on duty got to "treat" you. Our Doctors were named Hope and Pitman, but we called them Hopeless and Pitiful.

[BobKamman]

@dkh Yes, the travel would be necessary if the procedure were illegal at the worksite. 

@joshuabarksatlcs Don't ask me, ask Justice Alito.

[joshuabarksatlcs]

It actually came to me during dinner.  I had Salmon.  Fish is good for the brain.  "Oh that." I said to my blackened salmon. 

Then, Bob, you kindly confirmed it was "Oh that".

Well, I'd have to say, Houston, there's a problem.  To be tax savvy, the reimbursements require a written plan.  The written plan has to be enforceable under the law of the state, and the T's and I's in the plan have to be legal under the applicable law.  I don't know how it would shake out.  It could be some sort of circular logic.  It may just fall back on "NO written plan, no tax-free perks." 

But then, as I advise clients from time to time, tax in only an aspect in life that should NOT be the cart in front of the horse.  We should instead worry about the horse which for now is named Oh-That.

[BobKamman]

@joshuabarksatlcs  To the millions who never learned the basics of English pronunciation, I often explain that my surname rhymes with salmon and famine, so think of hungry fish.  For readers here, though, I now can simply ask them to think of you ending your hunger with that dish I had at the Cajun restaurant last Thursday.  

[dkh]

Wouldn't these large businesses be able to afford Drs to perform any procedure their employees seek and expensive lawyers to keep them out of court.    

[joshuabarksatlcs]

To the few I know, who know English pronunciation inside out (and also to the few who would say "pronounciation could be mischieveous", I'd throw them this one:

Salmon has one silent alphabet (the L).   Name a word that has TWO silent alphabets.  (Ooooooh doesn't count.  It has to be two different alphabets.)

[IRonMaN]

I thought there was only one alphabet.  What dimension are you coming from that there are two alphabets?

[BobKamman]

I think the colonel means silent consonants, or silent letters.  But watch out for northern Californians who pronounce the L in almond.  

[IRonMaN]

So you are saying folks in Arizona pronounce almond wrong? 😉

[sjrcpa]

I hear they'll be coming to Washington, DC and Maryland.

[sjrcpa]

Yes they could afford it but I don't know about keeping them out of court. In some states, any person can file a lawsuit against you if they think you aided and abetted. So if word gets out that X Company is paying the bill, then they might expect suits from ZZZZZ people.

[joshuabarksatlcs]

I'll go with Mr. Webster (that is, NOT just we or us Californians):

almond    al·​mond | \ ˈä-mənd  , ˈa-  , ˈäl-  , ˈal- \

salmon    salm·​on | \ ˈsa-mən  \

Yes.  The colonel meant silent letters. 

The colonel's third grade teacher was Mrs. Kumar.  According to the internet: It may be worth noting that in Indian English, the word alphabet can take on a similar meaning to letter, which can cause confusion.

So, dear Bob, the colonel hereby stands corrected, TYVM.   

But, Ooh Emmm Geee, the colonel is sitting down....

[BobKamman]

@joshuabarksatlcs  When I was a kid I spent some summers near Chico (yes, almost Paradise) where they grow a lot of nuts (yes, I know what they say about California and fruits too), and if you didn't say all-munds, they would say "You're not from around here, are you?"