IRS Ruling on Payroll Taxes and Retirees
By: Charles L. Telk Jr., CPA, Senior Tax Advisor | email
In a recent private letter ruling, the IRS has determined that, for businesses that pay retired employees in cash in lieu of medical benefits, payroll taxes are due on those payments.
The IRS says that a retiree who had been provided medical benefits by his prior employer owes FICA taxes on any cash payments received in lieu of continuing medical benefits. The payment is considered to be salary – and thus subject to payroll taxes because it relates to a benefit from a prior employment relationship.
This ruling would appear to apply to any business that compensates a retired employee in cash even if the funds are to be used for medical insurance or other medical benefits.
If you have any concerns about this ruling, please contact us and we would be glad to help you.
