8797 / Are reimbursements attributable to employee contributions to a self-insured health plan taxable to the employee?

Generally, reimbursements attributable to employee contributions are received tax-free. However, an employee must include any reimbursed amount to the extent that the employee has taken a deduction for the expense.Amounts attributable to employer contributions are determined based on the ratio that employer contributions bear to total contributions for the calendar years immediately preceding the year of receipt (up to three years may be taken into account). If the plan has been in effect for less than a year, then the determination may be based upon the portion of the year, or such determination may be made periodically (such as monthly or quarterly) and used throughout the succeeding period.¹

For example, if an employee leaves employment on April 15, 2023, and 2023 is the first year the plan was in effect, the determination may be based upon the contributions of the employer and the employees during the period beginning with January 1 and ending with April 15, or during the month of March, or during the quarter consisting of January, February, and March.

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1. Treas. Reg. § 1.105-11(i).