Federal Tax Considerations for Health Insurance

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44 Terms

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Adjusted gross income

gross income (all income from whatever sources) minus adjustments to income

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Defined-benefit plans

the employer specifies an amount of benefits promised to the employee

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Defined-contribution plans

focus on contributions rather than on the benefits they will pay out

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IRS

Internal Revenue Service: a U.S. Government agency responsible for collecting of taxes, and enforcement of the Internal Revenue Code

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Tax deductible

a qualified expense that may reduce the amount of income subject to taxation

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Tax exempt

not subject to taxation

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Taxable

subject to taxation

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Noncontributory

employer pays entire cost; benefits part of employee's gross income and taxed income

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Fully contributory

employee pays entire cost; benefits received tax free by employee

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Partially contributory

cost shared by employer and employee; portion paid by employee is received tax free and portion paid by employer is part of employee's gross income and taxed as ordinary income

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Long-term care

premiums are deductible; daily benefits that do not exceed costs are tax free; excess costs are taxed

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Accidental death and dismemberment

policies are deductible to employer; benefits are tax free

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Medical and dental expense

employer premiums are deductible; premium by the employee is not deductible

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Key Person

Premium not tax deductible to business
Benefits tax free by business

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Buy-sell agreement

Premiums not deductible to business
Benefits tax free by business

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How are benefits received by the business from a key person disability insurance?

Income tax free

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How are the benefits of group accidental death and dismemberment policy received?

Income tax free

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Under a fully contributory health plan, how are benefits received by the employee?

Income tax free

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Under what employer-provided plan are the benefits taxable to an employee in proportion to the amount of premium paid by the employer?

Disability income

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What is the tax advantage of the employer paying premiums for its employees for disability income insurance?

Premiums are deductible as a business expense

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How are individually-owned disability income benefits taxed once received by the insured?

Disability benefits are not taxed; they are received income tax free

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In order to be eligible for coverage by an HSA, an individual must also be covered by what type of health plan?

High Deductible Health Plan (HDHP)

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How long do short-term disability group plans pay benefits?

For a period of less than 2 years

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How are excess funds in an employee's health savings account (HSA) handled?

The funds can be carried forward to the next year

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What are the tax implications for employer contributions to Health Reimbursement Accounts?

Employer contributions are tax deductible as business expenses

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In group medical and dental expense insurance, what percentage of premium paid by the employer is deductible as a business expense?

100%

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To be eligible for a Health Savings Account, an individual must be covered by a

High-deductible health plan

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Which of the following statements about HRAs is TRUE?

The account allows roll-over of unused balances at the end of the year at the employer’s discretion

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Employers can reduce health plan costs by coupling a Health Reimbursement Account (HRA) with

A high deductible health plan

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Assuming that all of the following people are covered by a High Deductible Health Plan and are not claimed as dependents on anyone’s tax returns, which would NOT be eligible for a Health Savings Account?

Amanda is 67 and is covered by a basic medical expense policy

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The limits of a health reimbursement account are set by

The employer

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Who determines the eligibility and contribution limits in a HRA

The employer determines both

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An insured had $500 left in his Health Reimbursement Account when he quit his job. What happens to that money?

The insured can have access to the $500 at his previous employer’s discretion

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What is a penalty tax for nonqualified distributions from a health savings account?

20%

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An insured is the recipient of an Accidental Death and Dismemberment (AD&D) policy purchased by his employer. The policy pays triple indemnity in case of accidental death. If the insured died as a result of an accident stipulated in the policy, how will the benefits paid be taxed?

Benefits received are considered income tax free

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Individuals who itemize deductions can claim deductions for medical expenses not covered by health insurance that exceed what percent of their adjusted gross income?

7.5%

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A noncontributory group disability income plan has a 30-day elimination period and offers benefits of $2,000 a month. If an employee is unable to work for 7 months due to a covered disability, the employee will receive

$12,000, all of which is taxable

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Group disability income insurance premiums paid by the employer are

Deductible by the employer as an ordinary business expense

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The annual contribution limit of a Dependent Care Flexible Spending Account is set by

IRS

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What are the 2 types of Flexible Spending Accounts?

Health Care Accounts and Dependent Care Accounts

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