4121 / How are contributions to 501(c)(9) trusts (“VEBAs”) taxed to participants?
Whether an employer’s contributions to a VEBA to provide particular benefits are taxable to participants would seem to be determined under generally applicable tax rules. The presence of the VEBA would not seem to require special treatment. For example, the IRS has privately ruled that employer contributions to trusts providing accident and health benefits are excludable from participants’ gross income as provided in IRC Section 106.1
Similarly, whether contributions to a VEBA are wages for FICA, FUTA, and federal income tax withholding purposes generally is determined under the FICA, FUTA, and withholding rules applicable to the kind of benefit or kinds of benefits at issue.2
Planning Point: Rules governing the taxation of employer-owned life insurance (i.e., COLI) were enacted under PPA 2006.3 Whether these rules might apply to a VEBA, if the VEBA were considered to be engaged in a trade or business, is unclear.
1. See, e.g., Let. Ruls. 9513007, 9340054, 9151017, 9046023, 8534048, 8507024, 8445019.
2. See, e.g., Let. Ruls. 9340054, 8824030, 8534048.