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.