By Grace-Marie Turner
Forbes, June 30, 2015
Small businesses that reimburse employees for the cost of premiums for individual health insurance policies or pay their health costs directly will be fined up to $36,500 a year per employee under a new Internal Revenue Service regulation that takes effect July 1, 2015.
According to the notice, an employer arrangement that reimburses or pays for employee individual health premiums is considered to be a group health plan that is subject to the $100 per-employee per-day penalty. The penalty applies whether the reimbursement is considered a before-tax or after-tax contribution.
“It’s the biggest penalty no one is talking about,” said Kevin Kuhlman, policy director for the National Association of Independent Business. “The penalty for compensating employees for healthcare-related expenses is enough to destroy most small businesses.” You can read more in this NFIB post, “No Kidding: This Week IRS starts Punishing Businesses for Helping Workers Buy Insurance.”
The new IRS penalty is more than 18 times greater than the $2,000 employer-mandate penalty under ObamaCare for not providing qualifying health insurance for employees. And employers with fewer than 50 workers are not exempt, as they are from the employer-mandate penalty.
The rule appears nowhere in the Affordable Care Act but was developed by the Obama administration’s regulation writers at the IRS. The rule punishes small businesses for providing the only health insurance support many can afford – a contribution to help employees pay premiums for their individual or family health insurance policies or to help finance direct payment for medical services.
“Reimbursing employees for the cost of insurance or medical services is a way for small businesses to help their workers without the administrative headaches of setting up a costly group plan,” Kuhlman said. “Most small employers don’t have HR departments or benefits specialists, so this is a simpler, easier way to help their employees.”
No more, says the IRS. If you take the “simpler, easier” route that you can afford, the IRS will slap you with $100-a-day, per-employee fines until you stop.
Rep. Charles Boustany has introduced legislation in the House (H.R. 2911) and Sen. Charles Grassley, in the Senate (S.1697) to remedy the problem. Both bills await congressional action.
“If there’s an opportunity for a bipartisan improvement toward affordable healthcare, this has to be it,” said Kuhlman. “There’s no real justification for penalizing small businesses that do what the law’s strongest supporters claim to want, which is to help employees obtain coverage or pay medical bills. This is a rigid and thoughtless bureaucratic rule that undermines the purpose of the law, and it ought to be repealed immediately.”
The rule covers employers with more than one employee participating in an employer health care/coverage payment arrangement. Employers can exclude workers who 1) have fewer than three years of service to the company; 2) are under age 25; and 3) are part-time or seasonal employees. The $100 a day fine applies for all other employees covered by the payment arrangement. S Corporations are exempt through the end of 2015.