Important ACA Penalty Relief for Small Employers
The IRS today released in Notice 2015-17 some welcome, albeit very late & long overdue, relief from onerous ACA excise tax penalties for certain small employers that either paid or reimbursed employee’ premiums for individual health insurance policies, a practice that was common among many small employers but was in violation of the Affordable Care Act (ACA) market reform rules as of January 1, 2104. Included in this relief notice is transitional guidance related to greater than 2% shareholders of S corporations, and reimbursement of Medicare and Tricare premiums.
Without this relief, employers who had such reimbursement arrangements in 2014 were potentially subject to an onerous $100 per day per employee (potentially $36,500 per year per employee) for each violation. However, many employers were unaware of the violation due to seemingly contradictory guidance issued by the IRS and DOL.
There are four examples in the notice of transitional relief. Of the most immediate importance, the IRS is waiving the potential penalties for reimbursing or paying employees’ premiums for individual (i.e., not group) policies by qualifying small employers for payments made in 2014 and in 2015 thru June 30, 2015. Further, no Form 8928 reporting the violation is required to be filed. Additionally, the IRS stated that reimbursement arrangements related to greater than 2% S corporation shareholders would also not be subject to penalty or filing of Form 8928 through the END of 2015, while the IRS and DOL contemplate the issue and whether any further guidance is needed.
This is good news, but the relief is temporary. You effectively only have until June 30, 2015 (at least with regard to employees) to deal with the issue and fix the problem, i.e., either switch to qualifying group insurance, drop the insurance issue altogether, or increase employee cash compensation that the employees can then use to purchase their own insurance. If the latter option is chosen, the increase pay must come with no strings attached. In other words, you cannot make it a requirement that they use the increased to buy the insurance, as such a requirement in and of itself would also be a violation of the ACA market reform rule.
Please contact your EGP Client Service Associate to see if you qualify for relief, or if you need further guidance or have questions regarding this matter.
