Retiree Health Care Waiver not Taxable Income

The Internal Revenue Service (IRS) ruled that an arrangement under which employees could give up the right to get retiree health benefits in exchange for a higher future pay rate does not represent a taxable event.

That holding came in a private letter ruling, which only directly affects the individual taxpayer requesting the IRS opinion; the taxpayer is not identified in the publicly released document.

According to the IRS document, the employer’s retiree health insurance program gives employees a chance within 15 days of starting work to waive retiree health care in exchange for a future pay increase. Electing the pay hike does not change the pay rate for employee services already performed.

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Harry Beker, branch chief, health and welfare branch, Office of Division Counsel/Associate, who wrote the IRS letter, cited Section 1.451-2(a) of the Income Tax Regulations.That provision indicates that income, although not actually reduced to a taxpayer’s possession, is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.

Beker said, however, that income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.

The bottom line, according to Beker: Employees working for the company requesting the private letter ruling are not to be considered as having received taxable income.

The IRS document is available here.

NY Red Cross Drops 401(k) Match

The American Red Cross of Greater New York has joined the list of firms dropping or suspending 401(k) matches because of the economic downturn.

The New York Times reported that the Red Cross chapter has discontinued its match, halted all salary increases and bonuses, and laid off a quarter of its 186-person staff.

The news report said the layoffs are expected to save $3 million to $4 million and eliminate positions across the board, including senior administrative staff members, emergency dispatchers, and employees who run training classes from local Red Cross offices.

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“We scoured all of our expenses and looked for every opportunity to reduce them,” Terry Bischoff, the chief executive of the chapter, told the Times. “We love our employees, they’re great; we value every one of them. We’ve worked very hard to have the number of layoffs as small as it could be.”

According to the news report, the Greater New York chapter is the largest Red Cross unit in the country, and dispatches workers to respond to emergencies—more than 3,000 a year—in all five boroughs of New York City and four counties in the lower Hudson Valley.

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