‘Double Dip’ Dilemmas

The Rise and Risks of Tax-Based Fixed Indemnity Plans

Robert J. McLeod, JD

To reduce unnecessary costs, businesses strive to minimize their tax liabilities. Employment taxes, particularly the employer's share of Social Security and Medicare taxes under FICA, may represent a significant portion of a company's tax burden. On the other side of the ledger sit employees, eager to maximize their compensation. This sets up a zero-sum game of opposing economic interests. The tax code occasionally disrupts this paradigm by allowing businesses to convert a portion of an employee's compensation into non-taxable wages. These tax-advantaged benefits largely consist of the standard benefits found in new employee welcome packets, including employer-sponsored comprehensive health coverage, transportation benefits, and Health Savings Accounts.