(2014) We are receiving health insurance through my wife's employer. We pay 20% of the cost back to her employer. The employer takes this from her check pre-tax. The employer pay the full premium to the insurance company. However, my employer is reimbursing me that 20 percent that we send to her employer.
In this scenario what do I report as taxable income? Is there a better way to handle this?
===========As in both cases, the amounts get reported to you via your form W-2, the employers are already telling you what is taxable and what is not.
Assuming that your question is: Are they reporting it correctly?
In 2013: You have a medical deduction for the 20% cost of your insurance that you paid as it is post-tax. The 80% provided by your employer (under their cafeteria plan) is not taxable to you. The employer takes the deduction for the 80% amount.
In 2014: Your wife has zero to report or deduct as your share of the premium is pre-tax. Your employer should be adding the 20% it is reimbursing you to your wages for income tax purposes. Whether this amount is also compensation for FICA purposes (assuming you haven't already hit the SS limit) I have not looked into, but I would suspect not (because it is not compensation for work but a reimbursement).