State employees enjoy the tax savings of the premium conversion (pre-tax Tax Consequences premium) program authorized by section 125 of the Internal Revenue Code. of Premium Under IRS rules, the premium actually constitutes a salary reduction, with the Conversion state providing the healthcare benefit. Consequently, when employees Refunds participating in premium conversion receive refunds in a calendar year subsequent to the year the premium was originally deducted, a corrected W-2 (Form W2-C) may be required. When healthcare deductions (premiums) are withheld in error, the CIPPS Premium Refund deduction refund process should be used to refund the employee deduction, Guidelines premium reward and the agency expenditures associated with the premium. The refund must be processed along with the regular payment. employee’s Process the refund on HTODA, “Employee Deduction Refund/Adjustment.” Reference CAPP Cardinal Topic 50605, Tax and Deduction Adjustments, – for instructions. Special Special care should be taken when processing premium conversion deduction Considerations refunds. You may need to collect any appropriate taxes due directly from the employee when premium conversion deduction refunds are processed for employees who are no longer receiving regular pay. Upon receipt of the delinquent taxes, the masterfile will have to be updated and taxes employee’s deposited. Refer to CAPP Cardinal Topics 50605, Tax and Deduction – and 20319, for Overrides, Electronic Federal Tax Payments System (EFTPS), procedures. Continued on next page BES/CIPPS Processing Features Benefits BES is the official healthcare enrollment system of the Commonwealth and Eligibility the of health insurance transactions created in CIPPS. To emphasize “driver” System the importance of this point, the employee benefits screen in CIPPS (HMCU1) displays the Health Transactions in message, “Enter BES.” This informational message remains on the screen as a reminder and does not clear after the Enter key is depressed.
Tax Consequences of Premium Conversion Refunds State employees enjoy the tax savings of the premium conversion (pre-tax premium) program authorized by section 125 of the Internal Revenue Code. Under IRS rules, the premium actually constitutes a salary reduction, with the state providing the healthcare benefit. Consequently, when employees participating in premium conversion receive refunds in a calendar year subsequent to the year the premium was originally deducted, a corrected W-2 (Form W2-C) may be required. Premium Refund Guidelines When healthcare deductions (premiums) are withheld in error, the CIPPS deduction refund process should be used to refund the employee deduction, premium reward and the agency expenditures associated with the premium. The refund must be processed along with the employee’s regular payment. Process the refund on HTODA, “Employee Deduction Refund/Adjustment.” Reference CAPP – Cardinal Topic 50605, Tax and Deduction Adjustments, for instructions. Special Considerations Special care should be taken when processing premium conversion deduction refunds. You may need to collect any appropriate taxes due directly from the employee when premium conversion deduction refunds are processed for employees who are no longer receiving regular pay. Upon receipt of the delinquent taxes, the employee’s masterfile will have to be updated and taxes deposited. Refer to CAPP – Cardinal Topics 50605, Tax and Deduction Overrides, and 20319, Electronic Federal Tax Payments System (EFTPS), for procedures. Continued on next page BES/CIPPS Processing Features Benefits Eligibility System BES is the official healthcare enrollment system of the Commonwealth and the “driver” of health insurance transactions created in CIPPS. To emphasize the importance of this point, the employee benefits screen in CIPPS (HMCU1) displays the message, “Enter Health Transactions in BES.” This informational message remains on the screen as a reminder and does not clear after the Enter key is depressed.
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