Did you know giving money for healthcare is illegal for small businesses?

The IRS issued temporary relief to small employers on the ACA.
The IRS issued temporary relief to small employers on the ACA.

Did you know there is a little known provision of the Affordable Care Act makes it illegal for employers with fewer than 50 employees to give them money to buy healthcare? Yes, those situations where a small business doesn’t have health insurance coverage but offers their employees some money so they can go to the market place and buy some health insurance on their own violates the provisions of the ACA. According to the ACA that constitutes a group health plan that does not meet federal requirements for coverage. There is a stated fine of $100 per day, per employee, for this violation. That is $36,500 per year per employee. Naturally as people have discovered this they have cried foul. Fortunately the government has listened and has provided some temporary relief, but just temporary.

IRS issues guidance

On February 18th, the IRS issued Notice 2015-17 which “provides transition relief from the assessment of excise tax under section 4980D for small employers (in particular, employers who are not applicable large employers) who reimburse or pay a premium for an individual health insurance policy for an employee.” This notice will be published in the IRS Bulletin that is to be published March 9, 2015.
According to the Bulletin:

The SHOP Marketplace addresses many of the concerns of small employers. However, because the market is still transitioning and the transition by eligible employers to SHOP Marketplace coverage or other alternatives will take time to implement, this guidance provides that the excise tax under Code § 4980D will not be asserted for any failure to satisfy the market reforms by employer payment plans that pay, or reimburse employees for individual health policy premiums or Medicare part B or Part D premiums (1) for 2014 for employers that are not ALEs for 2014, and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015. After June 30, 2015, such employers may be liable for the Code § 4980D excise tax.

What this means is that if you give employees money to get health insurance, even if it is taxed as wages, then you have to stop or get qualified health insurance. However, according to one interpretation: “The Notice reaffirms that increasing an employee’s compensation and not conditioning that payment on the purchase of health coverage would not constitute an improper employer payment plan.” So even though many employers want to designate money to employees as going to healthcare you cannot do that without paying a fine. You can still give money to employees but it has to be unconditional.
You have until June to fix your reimbursement situation so you may want to take a look at what you are doing with employees.
Here is the bulletin and here is an explanation from Iowa State’s Center for Agricultural Law and Taxation.
Original source was Jaime Dupree’s Washington Insider

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