IRS Affordable Care Act Penalty Relief for Small Employers Expires Soon

In Employee Benefits by Coolidge Wall

Previously the IRS announced that employer payment plans would violate the Affordable Care Act and subject an employer to penalties. An employer payment plan is a plan under which an employer reimburses an employee for all or part of the premium for an individual health insurance policy. The penalty for this arrangement is $100 per participant/per day.

In February the IRS granted small employers (those with fewer than 50 full-time employees) a break from the penalty through June 30, 2015. If a small employer is still reimbursing employees for individual health insurance premiums, the employer must stop the reimbursements no later than June 30, 2015.

Although an employer can no longer help employees with individual health insurance through an employer payment plan, an employer has one approved option to help employees. The IRS approved method of helping employees is to increase an employee’s compensation. However, the employer cannot condition the payment of the additional compensation on the purchase of health coverage (or endorse a policy, form or issuer of health insurance). Additionally, while payments made to an employee under an employer payment plan were not taxable income, increasing an employee’s compensation is taxable income. Therefore, employers may want to consider paying the employees enough to cover the increased compensation plus the taxes that would now be due.

For mer payment ore information on employ plans, please contact Edie E. Crump at (937) 223-8177.