Penalty Eliminated for Employer Health Insurance Reimbursements
Last year, the IRS began enforcing a penalty on employers who reimburse employees for the cost of health insurance premiums. The fine was up to $100 per day ($36,500 per year), per employee. On Wednesday, December 7th, legislation was passed eliminating that penalty. Employers can now reimburse employees for the cost of health insurance premiums without being penalized.
In order to qualify, small employers must set up a stand-alone health reimbursement arrangement.
Small Employers Able to Use Stand-Alone Health Reimbursement Arrangements
The legislation passed on December 7th allows employers to fund employee HRAs to pay for qualifying out-of-packet medical expenses and health insurance premiums (including plans purchased from the exchange). Reimbursements to the employee for medical expenses are tax-free only if the employee is enrolled in other health coverage that is minimum essential coverage. Employees that are covered by an HRA will not be eligible for subsidies for health insurance purchased on the exchange. The act takes effect for plan years beginning after December 31, 2016. To qualify for the funding of HRAs, the employer must have fewer than 50 full-time employees (or equivalents) and they must not sponsor a group health plan. The following are a list of additional requirements for the HRA’s:
- The HRA’s must be funded solely by employer contributions
- Must provide payment or reimbursement for medical care expenses or health insurance premiums. Employees must provide documentation/receipts for medical expenses or health insurance premiums paid.
- The maximum reimbursement for health expenses through HRAs is $4,950 for single coverage and $10,000 for family coverage
- If an employer chooses to offer HRA’s, they must be offered to all full-time employees, unless one of the following applies:
- The employee has not yet completed 90 days of service
- The employee is under 25 years old
- The employee is covered by a collective bargaining agreement for accident/health benefits
- The employee is a part-time or seasonal worker
- An employer must make the same HRA contributions for all eligible employees, however the following items may cause the amount to vary:
- Price of the insurance policy
- Age of the employee/eligible family members
- Number of family members covered
The professionals in our office can answer any questions you may have about the new legislation. Call us today.