Under the terms of the Patient Protection and Affordable Care Act (PPACA) of 2010, medical insurers who fail to devote 80 percent of premiums received on health care expenses (86 percent in the large group market) must pay annual rebates, with the first set of rebates due this Aug. 1.
The Internal Revenue Service (IRS) has clarified that such rebates for employer-based insurance policies are generally taxable. If the employer receiving the rebates on behalf of his or her employees chooses to use it as a yearly premium reduction, that portion of the premium rebated suddenly becomes taxable income (since it is no longer part of a tax-free group insurance premium). Likewise, if the employer chooses to simply provide a cash rebate, that rebate becomes part of the employees' wages and is instantly taxable.
Earlier, we posted an article on how to determine if your insurer owes you a rebate. To see if you or your company has a rebate coming, please refer to "HHS Tool."