Taxability of Medicare Premium B payments as a retire benefit

[AnmarieA]

Hello Community. 

My client received a 1099-NEC from their former employer for an amount equal to her Medicare Premium B withholding from her SSA. I did not think that reimbursements of insurance payments as a retiree benefit are a Taxable event. My question is why would a 1099-NEC be issued for a reimbursement? How do I treat this on the individuals tax return as I do not believe it should be taxable income to the recipient. I can not find anything specific on the IRS.gov website. Employer paid premiums is typically not a taxable item on the recipients tax return for active or retirees, so why would this be any different. 

I would be grateful for some feedback. 

Thanks in advance and happy Tax Season!

[BobKamman]

If the employer is doing it the right way, it should not be taxable.  If they were doing it the wrong way, I don't think the 1099-NEC is the proper form.  It should be a 1099-R or W-2.

A local city has a plan to pay retirees a fixed amount (about $200 a month) as reimbursement for health insurance and other medical expenses.  At retirement, the employee is asked to sign a document acknowledging that all of the payments will be used for health insurance or other medical expenses.  I had clients, a married couple, who retired from the same city.  One of them received a 1099-R for the monthly payments, and the other didn't.  I suggested they find out the reason, and it turned out that one of them had not signed the required paperwork.  After doing that, no 1099-R was issued. 

Your client should check with the employer about whether a similar situation exists.  Or, this may be a defective "Retiree Reimbursement Arrangement."  See

https://www.benefitspro.com/2022/10/06/help-your-employees-think-about-retirement-now-with-a-rra/?sl... 

[AnmarieA]

Thanks for your response. I know of many "employers" who offer and pay for retiree medical and I have never seen it reported on any sort of tax document. This is why I thought a 1099-NEC did not appear correct. However you point about what the employee signs as part of their retirement benefits should be a great start for my client to discuss. 

If the employer is not willing to adjust the 1099-NEC in 2024 but indicates they will correct moving forward can a work around be to record the Medicare Premium B expenses on a sch C to offset the income? I know this is not an ideal situation but a way to document receipt of the 1099-NEC so not to ignore. With a 1099-R you can recategorize the income as non taxable, but with a 1099-NEC there is really no way to identify it as non-taxable. 

Hopefully the employer will remedy the situation. 

Thanks again for your feedback!

[BobKamman]

I'm in the minority by not having a membership in the "one good lie deserves another" club.  Just because the employer made a mistake, why claim the taxpayer is running a business?  Next thing you know the Census Bureau will be sending questionnaires about how many employees and products, and the state revenue people might be asking about sales tax.  

I would attach an explanation to the return and tell the client that if a CP-2000 is received, use it for the reply.  I'd give a 90% guarantee that will work.  Life is always uncertain.  

[AnmarieA]

Thanks the former employer indicated that they issued the 1099-NEC in error and will be correcting the document. That is the best solution for this scenario. Thanks and my alternative solution that I was going to put an explanation on the Sch C to explain why the income as reported on the 1099-NEC was incorrect. It was never suggested "one good lie deserves another" as I am a reputable preparer but did not know of way to document this error. Where can you put explanations in proconnect that the taxpayer and the reporting agencies like the IRS and State can see as plan as day. They do not read half the information in the basic return as filed from what I can tell.

Thanks again for your input as I think requesting that she contact the former employer and then sending a corrected 1099 was what was the ideal resolution.