Snyder and Associates

Tax Byte

Health Insurance Rebates – Taxable?

Continuing the theme of our last TaxByte, in which we noted several of the tax provisions that were created by the Affordable Care Act, we explore a provision of the Act known as the "80/20" rule.

In general, the 80/20 rule requires that health insurance companies can use no more than 20% of premiums for overhead and profits. Basically, 80% of premiums must go to covering the cost of health care and quality improvements. For plans that cover more than 50 employees, the 80% provision is increased to 85%. To the extent that health insurance companies did not meet this rule, they were to process refund premiums paid in 2011 by August 1, 2012. Based on government estimates, insurance companies will be refunding $1.1 billion in premiums to 12.8 million policyholders (an average of $151 per applicable household).

The question one might next ask is "are those refunds taxable?". The answer depends primarily on whether or not those premiums were paid on a tax-free basis. A article that further details the taxability of the health insurance rebates can be accessed here.

As always, if you have any questions or would like to discuss further, please give us a call.


Back to Tax Byte Archive