Partial payment of a personal insurance policy

Are insurance stipends to employees taxable?

“I don’t offer health insurance to my employees but would like to help them a little if they buy a personal insurance policy. Are there any problems offering an insurance stipend to them?”

My HR survival tip

This question has come up several times, particularly with so many companies hesitant about getting group health insurance because of the Affordable Care Act.

I know that whenever you give an employee any form of cash, it is considered additional compensation to them. The money should be run through your payroll system so appropriate taxes are deducted and paid.

However, I checked with a CPA (thanks, Dave) to find out if there was another option that might be more beneficial to the company. It is possible to pay toward the employee’s insurance without processing it through payroll… as long as you pay the money directly to the insurance carrier.

To summarize:

• If the employee receives the money, it is taxable compensation to him/her.
• If you pay the insurance carrier directly, it qualifies as a business expense for you.