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My employer here in Florida doesn't offer health benefits. However, each pay period (every 2 weeks) they include $150 (untaxed) for me to spend toward health care.

Am I required to spend that on health insurance, save it and pay health providers directly (kind of like a HSA), or other?

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    If they're giving you cash, then for you it's cash income, no different from the rest of your salary. If they put it into an FSA or HSA (or equivalent), then its use is restricted and it gains tax advantages.
    – keshlam
    Commented Jun 4 at 15:40
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    ok. Yes, they simply add the amount to my paycheck. So, I'm free to spend it as I see fit?
    – Brian
    Commented Jun 4 at 16:00
  • How do you know it is untaxed? have you computed what your withholding should be both counting it and not counting it and found the "not counting it" to be more accurate?
    – jjanes
    Commented Jun 5 at 4:05

3 Answers 3

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Start with asking your employer. There may be an HR person or a benefits person who can provide the answers you need.

But my guess is that they are not looking for proof that you are spending it on insurance expenses or premiums. If they did require it there would be a website or forms that you would have to submit as proof.

I do wonder about it being un-taxed. I did have one employer that did include on the stub how much they were providing for their part of the insurance premium, but that was just for information purposes. Check the lines on the stub to see if the money is really un-taxed. You may have to use a spreadsheet.

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    If they don't include it in withholding for whatever reason, they may have a problem. From the description it sounds just like another salary component.
    – littleadv
    Commented Jun 4 at 17:08
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I would consult with a CPA or other tax professional to make sure you're not going to have a huge tax headache coming up.

That aside, if your employer is not withholding taxes on this $150, and has not placed it in a tax-advantaged account or program, it's likely an additional (taxable) salary component. The exception would be if this was defined as a reimbursement payment. Things like mileage, and money spent on company consumed goods, are typically reimbursed with untaxed money (as they are supposed to replace already taxed funds). The reason I doubt this is accurate tax-wise, is that reimbursement usually needs a paper trail (e.g. receipts for premium payments that at least cost $150 per pay period) and would likely fail an audit if that paper trail is not complete.

Speak with your employer/payroll handler, and verify how the funds are classed (and how they will show up when filed with the IRS). Then take that information to a CPA or other tax prep professional and follow their recommendation.

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If they are simply adding $150 to your paycheck then this is just money paid to you as a "stipend". Unless they put it in a Lifestyle Spending Account (LSA), you can spend it on anything you want and they technically can't require you to show proof of expense type.

Regardless of whether it is a cash payment or a deposit into an LSA this is an after-tax payment. The employer and you should have payroll taxes on this. I would recommend you calculate your tax liability by hand and make sure that this is included in you taxable income.

Info on LSAs (Peoplekeep.com)

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