The IRS issued a Chief Counsel Advice Memorandum describing when an employer can reimburse an employee on a tax-free basis for the cost of health coverage provided by a spouse’s employer.
The IRS concludes that an employer may exclude from an employee’s gross income payments for the cost of health insurance coverage through a spouse’s health plan only to the extent the spouse has paid for all or part of the coverage on an after-tax basis and not through salary reduction payments.
The memo sets forth various scenarios and examples explaining the reimbursement options.
When the spouse pays for coverage with after-tax dollars, the employer can reimburse the employee for coverage for himself and/or for his spouse.
When the spouse pays for coverage with pre-tax dollars, the employee cannot receive tax-free reimbursement for the cost of coverage.
When the employer has an HRA that reimburses medical expenses, the HRA can only reimburse costs when the spouse pays for coverage with after-tax dollars.
A copy of the memo can be found here.