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The MMA (Medicare Modernization Act) of 2003 reimburses employers for a portion of their eligible expenses for retiree drug benefits through a 28% tax-free subsidy, which typically has been deducted from gross expenses. There is currently a loophole in the MMA which allows Plan Sponsors to deduct the value of this 28% tax-free subsidy twice - first they could exclude the 28% from their gross income, and then deduct it from their gross income for tax purposes.
Troy, Michigan (PRWEB) November 16, 2012
Please click here to read the legislation prepared by the Staff of the Joint Committee on Taxation.
Currently, RDS Program subsidies are excludable from the Plan Sponsor's gross income for the purposes of regular income tax. However, for taxable years beginning this December 31, 2012, the amount deducted for retiree prescription drug expenses must be reduced by the amount of the excludable subsidy payments received (i.e., Total Rx Gross Expenses minus Total RDS Subsidy Received).
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