Index Nos.: 0106.00-00, 3401.02-01, 0061.13-00
July 29, 1980
Refer Reply to: T:I:WEA:2:2
In order to comply with the provisions of the Age Discrimination in Employment Act, as amended, the City of *** (City) will begin paying premiums for coverage under Part B Medicare for its employees who continue working after attaining the age of 65. These payments will be made directly by the City to the Social Security Administration.
One of the City's employees currently receives Social Security retirement benefits. In the case of such individuals, Social Security Administration regulations require that Medicare premium payments be made through automatic deductions from the benefit checks which they receive. The City proposes to reimburse the affected employee by issuing a check, separate from his payroll check, for the amount of the automatic deductions.
Section 61 of the Internal Revenue Code provides that, except as otherwise provided by law, gross income means all income from whatever source derived, including compensation for services.
Section 106 of the Code provides that gross income does not include contributions by the employer to accident or health plans for compensation (through insurance or otherwise) to his employees for personal injuries or sickness,
Section 1.106 -- 1 of the Income Tax Regulations provides that the employer may contribute to an accident or health plan either by paying the premium (or a portion of the premium) on a policy of accident or health insurance covering one or more of his employees, or by contributing to a separate fund, which provides accident or health benefits directly or through insurance to one or more of his employees.
Rev. Rul. 67-360, 1967 -- 2 C.B. 71, describes a situation in which an employer paid the premiums for supplementary medical insurance (Medicare) for all his employees over 65 years of age. The ruling held that amounts paid by the employer as premiums for Medicare coverage are excludable from the gross income of his employees under section 106 of the Code.
Rev. Rul. 61-146, 1961 -- 2 C.B. 25, discusses a situation in which an employer reimburses each employee for the employer's share of the insurance premiums, where the employee pays the premiums directly to the insurer, upon proof of prior payment of the premiums by the employee. Rev. Rul. 61-146 held that the reimbursem*nt payments are employer payments of accident or health insurance premiums for employees if the payments are shown to be in reimbursem*nt of premiums actually paid by the employees to the insurer.
After carefully considering the proposed transaction, we conclude that the reimbursem*nt by the City of amounts which were previously deducted from an employee's Social Security retirement benefit check as a premium payment for Part B Medicare is excludable from the gross income of such employee under section 106 of the Code. Accordingly, the reimbursem*nt will not constitute the payment of a wage under section 3401(a) of the Code and will not be subject to income tax withholding on wages.
As you know, employees of a state or a political subdivision thereof generally may only obtain social security coverage by means of an agreement between the State and the Secretary of Health, Education, and Welfare, entered into pursuant to section 218 of the Social Security Act, as amended. The contributions for such coverage are not taxes, and the Internal Revenue Service has no jurisdiction in matters relating to section 218 agreements. Any questions concerning such coverage should be referred to the Social Security Administration for your State.
We regret the delay in responding to your request
Sincerely yours,
(Signed) Richard L. Crain Chief, Wage, Excise and Administrative Provisions Branch