Tax Implications of MLMIC Payouts – August 22nd Deadline

Karen M. Matticio, CPA, CVA, Member (Aug, 2018)

As you may be aware, Medical Liability Mutual Insurance Company (MLMIC) has begun the process of converting from a mutual insurance company to a stock insurance company.  MLMIC recently sent all policyholders a lengthy document (dated June 22, 2018) outlining all of the details of this conversion.  As part of this process, any policyholders of MLMIC between July 15, 2013 and July 14, 2016 are entitled to a payout based on the amount of premiums paid during this timeframe.  In many cases, these payouts will be significant, and are expected to be paid during the 4th quarter of 2018.  Therefore, we wanted to inform you about the tax implications of these payouts as well as the impending deadlines that could affect your ability to ensure the payouts are the most tax-advantageous for you and your company.

The MLMIC payout will be approximately 1.9 times the amount of eligible premiums paid over the 3 year period previously referenced.  For example, if the premiums paid (less any refunds or dividends received) were $100,000 per year for each of the 3 years, MLMIC would pay the policyholder approximately $570,000.  This amount would be taxable to the policyholder as a capital gain, with no basis to offset the gain amount.  C Corporations would pay the ordinary income rate on this gain at the 2018 flat rate of 21%.  Individuals, sole proprietorships, S corporations and partnerships would all be taxed at the applicable individual capital gain rate, which in most cases would be 20%. 

The default payee will be the individuals who were covered by the policy, rather than the company that employs them, whether that individual is a nurse, employed doctor, or owner doctor.  A designee can be appointed to receive the payout in lieu of the covered individual.  In order to appoint a designee, a written form must be submitted to MLMIC on or before August 22, 2018.  After this date, there is a process to request a designee and dispute payments being made directly to the individual policyholder, but failing to meet the August deadline could cause delays in receiving the payout while the dispute is being resolved.  You will need to contact MLMIC to receive the designee forms at 1-888-467-9074 between the hours of 9 am and 4 pm.  We recommend you do this as soon as possible so that you can meet the August 22 deadline. 

You may have also received a Form W-9 asking for the SSN or EIN of the individual or entity who will be receiving the payout.  This can be filled out once the designee has been determined.     Prior to making a decision about who to list as designee for each covered individual, we recommend that you contact our office to discuss the tax implications based on your specific situation, as there are a myriad of factors that can affect how this income is taxed. 

In light of this information, we would recommend that you take the following actions as soon as possible.  (1) Determine if you might be eligible for a MLMIC payout.  Calculate the amount of premiums paid to MLMIC from July 15, 2013 through July 14, 2016 and multiply this amount by 1.9 to estimate your payout.  The deadline to contact MLMIC for an estimate of your payout has passed, but if you call them at 1-888-804-9016, they may still be able to provide you with an estimate.  (2) Determine whether each covered individual should receive the payout or if a designee should be appointed.  (3) Call MLMIC at the number listed on the previous page to receive the necessary designee forms.  (4) Complete and return Form W-9 to MLMIC by August 22, 2018.

Please contact your DB&B tax advisor at 315.471.9171 for more information.

 

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.