Good news for small businesses: IRS provides relief for non-compliant premium-reimbursement arrangements until June 30, 2015

Posted on 02/20/2015 at 08:00 AM by The Newsroom

We’ve been hearing a lot lately about the Affordable Care Act, a.k.a., the ACA, a.k.a. ObamaCare. If you happen to be an employer with fewer than 100 full-time employees, you have likely heard that the “Employer Mandate,” requiring your company to provide group health coverage, does not go into effect until the start of 2015; and if you have fewer than 50 full-time employees, you do not have to provide group health coverage until the start of 2016. But that said, the IRS made clear in 2013 (in Notice 2013-54) that if you do provide healthcare arrangements, your plan must comply with the ACA requirements beginning in 2014. An employer that reimburses an employee for his or her individual health insurance is a healthcare arrangement that is not compliant with the ACA. Because of these separate rules—one saying small businesses do not need to comply with the employer mandate, and the other saying that if you provide a plan it has to comply with the ACA—many businesses found themselves to be non-compliant in 2014, with some not realizing it until 2015. What is an employer to do when it finds that it had a non-compliant plan and is potentially subject to an excise tax of $100/day per employee? Well, newly issued guidance from the IRS (Notice 2015-17) answers that question. The Notice provides transitional relief in certain circumstances from the excise tax for failure to satisfy market reforms. This relief applies to employer health arrangements that constitute (1) “employer payment plans” (essentially premium reimbursement) by employers with fewer than 50 full-time employees; (2) S corporation healthcare arrangements for 2-percent shareholders; (3) Medicare premium reimbursement arrangements; and (4) TRICARE-related health reimbursement arrangements (HRAs). If you are an employer who provided any of these arrangements in 2014 or into 2015, you may qualify for relief under the Notice. Specifically, for employers with fewer than 50 full-time employees, who have been reimbursing employee’s individual health care premiums (an “employer payment plan”), the Notice provides as follows: “[B]ecause 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” for all of 2014 and up until June 30 of 2015. After June 30, 2015, these employees may be liable for excise taxes, so they must ensure that they comply with the ACA by that time. 

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