Client Alert

Tax Risks of Providing Self-Insured Health Plan Benefits to RIFd Executives

January 26, 2009

Ethan Lipsig and Stephen H. Harris

One of the thornier problems an employer faces in offering exit incentives or severance benefits to U.S. executives is the possibility that the self-insured health benefits the employer would like to provide would be taxable. This problem arises because employer-provided self-insured health plan benefits are taxable to highly compensated employees (generally, persons in the top-paid 25 percent of the workforce) if plan coverage or benefits discriminate in favor of them. See Internal Revenue Code (Code) § 105(h).

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