ACA Compliance Reprieve for Small Companies Ends June 30

Jun 18, 2015 | By: Katie Entwit

IRS Transition Relief for Small Companies Offering Insurance Plan Reimbursement to Employees Ends June 30, 2015

 As of July 1, 2015, employers are no longer allowed to reimburse employees for individually purchased health insurance plans.  Originally scheduled to begin on January 1, 2015, the IRS pushed back the date for small employers in order to give them some extra time to find group health coverage. Any small employer that still offers this type of arrangement after June 30 would have to pay an excise tax of $100 per employee, per day, until the situation is fixed.

Employer payment plans: Since 1961, the IRS has said that employers could reimburse employees for individual health plans on a tax-free basis. The new Affordable Care Act, however, conflicts with this previous ruling.  The reason is this: any reimbursement of plans is considered a form of group health coverage.  If you have had your health plan for some time, it may not offer some of the benefits of the new ACA plans.  Your old plan may have an annual dollar limit on healthcare costs and may not allow annual wellness check-ups.  The new plans under the ACA, however, are required to offer preventive care, and are not allowed to have an annual dollar limit.  Since many old plans do not offer these changes, employers cannot reimburse for any plan under the new ACA laws.  Any employer that continues to reimburse for health insurance plans after June 30^th, 2015, will be subject to an excise tax of $100 per day, (which is $36,500 per year, per employee) under Code Sec. 4980D.

For example: "Widgets, Inc." has 10 full time employees.  They do not have a group health insurance plan, but will instead reimburse employees for half of an individual plan that they find for themselves.  This reimbursement has been tax-free in the past. If all employees participate, starting July 1, Widgets Inc. would have to pay a penalty of $1,000 per day.  Widgets can comply with the new laws by increasing its employees’ pay by the reimbursement amount instead.  This means the employees will be taxed on the extra income, but they can still use it to buy their own insurance plan through the federal marketplace.   The increase in pay must not have restrictions on it, though, so the employees may spend it how they choose.

If you have any questions, please give us a call. We’d be happy to sit down with you and discuss the tax implications of the ACA as they apply to your business. Also check out this resource on “What the ACA Means to You.”

Call: 503.390.7880