Many small employers that can’t afford a group health policy still want to help their employees. Previously those employers could reimburse employee health insurance premiums. Now employees of these small employers will be worse off thanks to new guidance from the IRS and the Affordable Care Act.
In a move that will surely have employers shaking their heads, the IRS has provided guidance that effectively says that any employers who reimburse employee health insurance premiums risk being assessed a $100/day “excise tax” per applicable employee (which is $36,500 per year, per employee).
The reasoning of the IRS is that these employer payment plans – §105 Health Reimbursement Arrangements – are considered to be group health plans subject to the Affordable Care Act reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Just reimbursing an employee’s insurance premium doesn’t meet all of the requirements of group health insurance under the Affordable Care Act. Even if all of the individual health plans meet the qualifications of the Affordable Care Act, reimbursing the employee’s premiums still won’t meet the qualifications of the ACA .
Now just in case you are thinking that you are your corporation’s only employee, so this doesn’t apply to you, not so fast. If you have a health insurance policy that you pay for individually and you have your C-corporation reimburse you for those premiums so they are fully tax deductible, this guidance from the IRS suggests that reimbursement plan would subject your corporation to the $100/day excise tax.