Medical Benefits Taxation

Title 26 of U.S. Code sets the definition of what is an employer tax-free benefit and who may partake in such a benefit for purposes of federal income taxation. At the current time, the benefit in question (tax-free employer medical benefits) is only available to the taxpayer, taxpayer's spouse and taxpayer's dependents. It would take an Act of Congress and the President's approval to change the definition of a spouse. Each State of the Union, may pass laws that treat the taxability of such fringe benefits in any manner they so desire. That would require an Act of the State Legislature and the Governor's approval.

It's taxable because everything your employer provides you is taxable unless it's specifically excluded by law, and this one has never been exempted by Congress. Bills have been introduced to change this, but none has passed.

States are free to do as they like, and I think most if not all of the states with formal civil unions have exempted this income from state taxation.

-- Phil Marti Clarksburg, MD

If the reimbursement is for a non-employee's medical expenses and that non-employee is not a family member of the employee (as defined in the IRC) then the reimbursement doesn't qualify for exclusion from the employee's taxable income. This practice is mandated in the Internal Revenue Code.

Tks all, appreciate the details a lot.

bill