CCA 200851097: Mandatory salary reduction for health coverage is excludable under section 106

Number

200851097

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

Contribution by Employer to Accident and Health Plans (Excluded v. Not Excluded)

Topics

Income and deductions

Code sections

§ 106, § 125

Ruling dated

September 16, 2008

Publicly released

December 19, 2008

Source

View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2008, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

The Chief Counsel writer states the office's position on mandatory salary reduction contributions used exclusively to pay for accident and health coverage of employees or retirees. The contributions are excludable from employees' gross income as employer-provided coverage under section 106. The writer explains that employees have no election between pay and benefits, whether to participate, or how much to contribute. On those facts, the arrangement is not a cafeteria plan, section 125 does not apply, and the writer sees no basis to tax the contributions and then treat them as after-tax employee contributions.

Ruling snapshot

Question: Are mandatory salary reduction contributions used exclusively for employee or retiree accident and health coverage excludable from employees' gross income?
Outcome: Advice given: yes, as employer-provided coverage under section 106 on the stated facts. Section 125 does not apply.
Key authorities: IRC sections 106 and 125; LTR 200837002.

Full text (IRS public release)

ID: CCA-916134-08 Number: 200851097
Office: ------------------------ Release Date: 12/19/2008

UILC: 106.00-00

From: ---------------
Sent: [Tuesday, September 16, 2008 1:41 PM]
To: ------------------------------------------------
Cc: ---------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Subject: [RE: Mandatory Employee Contributions to a VEBA]

It is the ruling position of this office that mandatory salary reduction contributions by an employer that are used exclusively to pay for the accident and health coverage of employees or retirees are excludable from gross income as employer-provided coverage under section 106 of the Code. Under these plans, there is no employee election between compensation and benefits, no employee election as to whether to participate in the plan and no employee election as to the amount of the contributions. See e.g. LTR 200837002. This is not a cafeteria plan and the section 125 rules are not relevant to this set of facts. In addition, I see no basis for taxing these contributions to the employee and then treating the contributions as after-tax employee contributions. Let me know if I can be of additional assistance.

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