If an employee was paid a benefit from their Critical Illness or Accident Plan in 2022 over $600, they will receive a 1099 from Allstate (for Critical Illness) or Voya (for Accident). If receiving a 1099 for the Accident Plan, please note employees will receive three copies; two for their records and one for filing.
Employees should consult a tax professional as to whether the amount received is fully subject to income tax. Since the premium is deducted on a pre-tax basis, the benefit received is only subject to income tax to the extent that the employee’s unreimbursed medical expenses (for which Health Care FSA funds were NOT used to pay) are less than the benefit payment.
For example, if a plan (such as Accident) pays $200 for a medical office visit, but the covered individual has unreimbursed medical costs as a result of the visit of $30 (such as a copay that the HCFSA was not used for), then the $30 would be excluded from the employee's income and the excess amount of $170 would be taxable.
More information can be found in this article around taxation and fixed indemnity plans which discusses an IRS Memo released in 2017.
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