Small Employers Cautioned: Relief For Paying Employee's Health Insurance Premium Ended June 30
So-called "Small" employers, i.e., those who are not applicable large employers (or ALEs) as defined later, who reimburse an employee for or pay directly a premium for an individual health insurance policy for an employee should be aware that they may be subject to a $100 per day ($36,500 per year), per employee excise tax.
Earlier this year, the IRS issued transition relief from the excise tax, but that relief ended June 30th.
Background. The Affordable Care Act (ACA) added sections to ERISA and the Internal Revenue Code to incorporate the provisions of the Public Health Service Act, and make them applicable to group health plans and to health insurance issuers providing health insurance coverage in connection with group health plans. An excise tax is imposed on failures to meet these requirements.
Relief for small employers. As noted in IRS Notice 2013-54, small employers that offered their employees health coverage through arrangements that constitute an "employer payment plan" will owe an excise tax if they fail to comply with the "market reforms" provisions of the law. Such an arrangement that fails to satisfy the market reforms may be subject to the $100 per day excise tax referred to earlier.
An arrangement common to many small employers, whereby they reimburse an employee for an individual policy (as opposed to a group health insurance policy) or pay the premium for such a policy directly, is considered an employer payment plan, per the Notice. Further, such an arrangement, it was ruled, fails to satisfy the market reforms and is therefore subject to the excise tax.
However, because the Small Business Health Options Program (SHOP) Marketplace was still transitioning, and the transition by eligible employers to SHOP Marketplace coverage or other alternatives would take time to implement, a later IRS notice, Notice 2015-17 stated that the excise tax would 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 qualifying employers.
This rule applied for 2014 for employers that are not ALEs for 2014, and for January 1 through June 30, 2015 for employers that were not ALEs for 2015. After June 30, 2015, such employers are generally liable for the excise tax.
An ALE generally is defined, with respect to a calendar year, as an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. Special transition rules beyond this article's scope apply for making this determination for 2014 and 2015.
Employers eligible for this relief that had employer payment plans weren't required to file, as they would have been otherwise, IRS Form 8928 (Return of Certain Excise Taxes Under Chapter 43 of the Code) for failures to satisfy requirements for group health plans, including the market reforms, if those failures were solely as a result of having the arrangements for the period for which the employer is eligible for the relief.
The IRS states that this relief did not extend to stand-alone health reimbursement arrangements (HRA) or other arrangements to reimburse employees for medical expenses other than insurance premiums.
Medicare premium reimbursement arrangements. Notice 2015-17 also provided that an arrangement under which an employer reimburses (or pays directly) some or all of Medicare Part B or Part D premiums for employees constitutes an employer payment plan as well, and if such an arrangement covers two or more active employees, it is a group health plan subject to the market reforms. An employer payment plan may not be integrated with Medicare coverage to satisfy the market reforms because Medicare coverage is not a group health plan.
Notice 2015-17 also addressed other topics, including: (a) the treatment, for federal tax and for market reforms purposes, of arrangements reimbursing premiums of 2% S corporation shareholder-employees; and (b) the application of the ACA market reform provisions to provide a TRICARE-related HRA.
Relief from the excise tax was provided for the reimbursement of the premiums of such 2% S corporation shareholder-employees, with such relief being applicable through the end of 2015, instead of only until June 30, 2015.
The American Institute of Certified Public Accountants is currently urging the IRS to permanently grant the relief provided in Notice 2015-17, and encourages taxpayers to contact their congressional representatives and the administration to request the same.
