TAP 04-021

Tax Treatment of Health Benefits Education

Statement of Issue:

Many small businesses are making decisions about whether to offer health benefits to their workers without being fully aware of the tax advantages that can make offering health benefits more affordable.

Proposal:

TAP redirected to Forms and Publications this proposal originally directed to SB/SE in TAP04-021 that the IRS partner with educational and professional organizations to provide clear, accurate, and balanced explanations of the tax treatment of health benefits to provide technical advice and encouragement to small businesses considering providing health benefits to employees, and specifically recommended that the IRS:

1. Combine in a new publication explanations about all the tax provisions governing payments for medical expenses to provide information comparable to that provided in various IRS publications about retirement plans for small business.
2. Add to the small business web site information about providing health benefits comparable to the information provided about retirement plans.
3. Expand the explanation of the tax treatment of health benefits and provide a cross-reference to the new publication explaining health benefits in existing publications directed at employers and small businesses.

TAP noted that since these recommendations were originally submitted, Publication 969, which formerly covered only Medical Savings Accounts, has been expanded to include information also on Health Savings Accounts, flexible spending arrangements, and health reimbursement accounts. The TAP Joint Committee applauded this effort as significantly advancing taxpayer education on the tax treatment of health benefits. Nevertheless, TAP continues to advocate that the publication be further expanded.