Level 3

Question

Severance Package & 1095-A

Forum|Forum|2 years ago
February 22, 2024
3 replies
18 views

I have a client who received a 1095-A, and also shared that several years ago received a severance package. As part of that severance package, the company offered to pay for the individuals and spouses insurance until they hit retirement age. So, they actually receive a check in the mail to cover the cost of the insurance that is represented on the 1095-A. How is this reported in Proconnect?

This topic has been closed for replies.

T

TaxGuyBill

Level 15

I just Googled 1098-A and don't see any references to it. Are you sure that is the form? Maybe you could post a picture of it (with any private information removed)?

K

KMA-TaxAuthor

Level 3

I have edited my question. My mistake, it was not a 1098-A it is a 1095-A.

itonewbie

Level 15

Can't tell where to enter on ProConnect until it is clear what the character of this income is.

Sounds very much like this is one of those ad-hoc arrangements that employers make with employees, often with flawed logic and without consultation with a tax advisor or legal counsel.

Based on the limited info you provided, these payments in relation to the termination of your client's employment should constitute wages. The regs are very clear that remuneration for services, unless excepted by the statute, constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them.

In other words, a W-2 should have been issued each year for these payments and FICA along with FIT/SIT should have been withheld. If the intention was to fund the insurance premium on a net basis, FICA, FIT, and SIT should have been grossed up.

---------------------------------------------------------------------------------Still an AllStar

K

KMA-TaxAuthor

Level 3

The employee has not worked for the employer for several years, however, the agreement was that the employer was going to pay X amount each year for their insurance through the Marketplace. They do not receive any tax documents from that employer, only a check once a year for the agreed upon amount.

Meanwhile, they receive a 1095-A showing they paid X amount, which was paid. However, I am unsure where to input the amount that the old employer paid since they no longer receive W-2 forms or any form from that employer.

This agreement was part of a severance package dating back to 2020 or 2021 I believe.

itonewbie

Level 15

Your latest response only restated what you already told us. Nothing has changed.

---------------------------------------------------------------------------------Still an AllStar

qbteachmt

Level 15

Is this a COBRA deal? It seems like COBRA reimbursement.

Google:

is cobra payment taxable

https://www.irs.gov/newsroom/cobra-questions-and-answers-for-employees-and-former-employees

And:

https://www.shrm.org/topics-tools/tools/hr-answers/can-pay-former-current-employees-cobra-coverage

"

COBRA premiums may be paid to the employee, and the employee would pay the insurance company directly. Since there is no guarantee that the employee will use the funds to pay the premiums, the funds are considered wages and subject to applicable taxes.
An employer may reimburse premium payments the employee made directly to the insurance company. The employee must provide the employer with documentation verifying that payments to the insurer were made for the payments to be nontaxable and excluded from wages.
An employer may pay the premiums directly to the insurance company. These funds are nontaxable to the employee and excluded from wages.
An employer may provide funds for premiums under a severance plan. If the employer deducts the premiums from the severance pay and pays the insurer directly, the funds are excluded from wages and are nontaxable. If the employee receives the funds and can provide supporting documentation of the payment to the insurer, the funds are also nontaxable. If there is no verification that the employee used the funds to pay for the premiums, the amounts are included in wages and are taxable.

"

Don't yell at us; we're volunteers

K

KMA-TaxAuthor

Level 3

More details....

This is a retiree insurance plan. The company pays $14,832 to the tax client. Tax client then pays the premiums which were $16239.12 for this year. I have entered the 1095-A as it was presented to me, where do I add the above information in Proconnect?

I have read through https://www.irs.gov/publications/p974 and within this publication it says:

Coverage after employment ends.

If your employment with an employer ends and you are offered employer coverage by your former employer (for example, COBRA or retiree coverage), you are considered eligible for that employer coverage for PTC purposes only for the months that you are enrolled in the employer coverage. This same rule applies to an individual who may enroll in the coverage by reason of a relationship to a former employee.

Does my tax client qualify for the PTC even though they only paid $1,407.12 for the year out of their pocket?

T

TaxGuyBill

Level 15

No, your client does not qualify for the Premium Tax Credit.

You can enter $0 (or probably $0.01 to avoid errors) for the SLCSP.

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