Accident and Health Plans This section provides basic tax information about accident andhealth plans. Accident or health plan.This is an arrangement that provides benefits for your employees,their spouses, and their dependents in the event of personal injury orsickness. The benefits can be paid directly by you, through insurance,or through a trust or fund that provides benefits directly or throughinsurance. Accident and health benefits include the following items. Contributions to the cost of accident or healthinsurance. Contributions to a separate trust or fund that providesaccident or health benefits directly or through insurance. Contributions to medical savings accounts. Payments or reimbursements of medical expenses. Payments for specific injuries or illnesses (such as theloss of the use of an arm or leg). Payments that replace or supplement wages during an absencefrom work due to illness or injury. Special rules apply to accident or health plans that includecoverage under a group health plan or contributions to an employee'smedical savings account. These rules are explained later. Exclusion from wages.You can generally exclude benefits you provide to an employee underan accident or health plan from the employee's wages as you withhold,pay, and report employment taxes. However, you cannot exclude paymentsyou make under a self-insured plan as a continuation of an employee'swages during his or her absence from work (sick pay). Treat thesepayments as wages. Self-insured plans that favor highly compensated individuals.If your plan is a self-insured plan and it favors highlycompensated individuals, you must include all or part of the amountsyou pay to these individuals in their wages. A self-insured plan is a plan that reimburses your employees formedical expenses not covered by an accident or health insurancepolicy. A highly compensated individual (for this purpose) is any of thefollowing. One of the five highest paid officers. A shareholder who owns (directly or indirectly) more than10% in value of the employer's stock. Among the highest paid 25% of all employees, other thanthose who can be excluded from the plan. For more information, see section 105(h) of the Internal RevenueCode and the related regulations. Group health plan.This is a plan (including a self-insured plan) that providesmedical care to your employees, former employees, or their families.The plan can provide care directly or through insurance,reimbursement, or otherwise. If your accident or health plan includes coverage under a grouphealth plan, you may be subject to various excise taxes if the grouphealth plan does not meet certain requirements. Coverage requirements.A tax equal to 25% of your group health plan expenses may apply ifthe plan discriminates against beneficiaries with end-stage renaldisease or because of age or disability. For more information, seesection 5000 of the Internal Revenue Code. Continuation-of-coverage requirements.A tax of up to $100 per beneficiary may apply for each day the plandoes not allow qualified beneficiaries who would otherwise losecoverage because of certain events to choose continuation coverageunder the plan. This tax does not apply if you normally employ fewerthan 20 employees. For more information, see section 4980B of the Internal RevenueCode and the related regulations. Other requirements.A tax of up to $100 per beneficiary may apply for each day the plandoes not meet requirements that do all the following. Increase portability by limiting the circumstances underwhich the plan can deny coverage for preexisting conditions. Ensure accessibility by barring the plan from using anindividual's health status to deny coverage. Guarantee renewability under a multi-employer plan bylimiting the circumstances under which the plan can deny an employercontinued access to coverage. Ensure an acceptable level of postpartum care by obligatingthe plan to pay for a minimum hospital stay for mothers and newbornsfollowing childbirth if the plan otherwise provides benefits forhospital stays in connection with childbirth. Increase parity for mental health benefits by preventing theplan from placing lower limits on those benefits than on the plan'smedical and surgical benefits. This tax does not generally apply if the plan has fewer than twoparticipants who are current employees or if your plan is insured andyou normally employ no more than 50 employees. For more information,see section 4980D and chapter 100 of the Internal Revenue Code. Medical savings accounts.If your health plan for your employees has a higher annualdeductible than typical health plans, your employees may be able toset up medical savings accounts (MSAs) to set aside money for medicalexpenses not reimbursable by the plan. Generally, your employees canset up MSAs only if you have 50 or fewer employees and yourhigh-deductible health plan has a limit on the annual out-of-pocketexpenses that an employee must pay for covered expenses. If you contribute to an employee's MSA, treat your contribution asaccident or health plan benefits up to the maximum annual contributionallowed for that employee. Generally, this is 75% (65% for self-onlycoverage) of the health plan's annual deductible, limited to theamount of the employee's wages. You may be subject to an excise tax if you make a contribution toan employee's MSA during any calendar year and do not make comparablecontributions for all comparable participating employees for eachcoverage period during that year. The tax is 35% of the total amountyou contributed to MSAs that year. For more information, see Publication 969,Medical SavingsAccounts (MSAs).