Most employers that offer a health reimbursement arrangement or premium payment plan to reimburse employees for their non-employer health coverage or Medicare Part B and D premiums will find their reimbursement arrangement is not compliant with Health Reform’s annual and lifetime dollar limit prohibition. This prohibition on non-compliant premium payment plans extends beyond the pre-tax reimbursement of premiums; it also includes post-tax reimbursement of non-employer (individual) health coverage as well.
An IRS Notice has provided some temporary relief from excise tax penalties for non-Applicable Large Employers (ALEs) in 2014 and they have indicated the penalties (excise tax) will not apply for January 1 to July 1, 2015 for non-ALEs in 2015. If an employer continues to reimburse an employee under a non-compliant plan after June 30, 2015, such employers will be liable for the Code Section 4980D excise tax.
An employer payment plan that contains fewer than two participants who are current employees, including retiree-only plans, is not subject to the ACA unlimited dollar requirement and therefore is still permissible.
The IRS Notice also indicates that an employer may increase an employee’s compensation without the condition of purchasing health coverage because the extra post-tax compensation is not considered an employer premium payment plan.
Please refer to IRS Notice 2015-17 for details and discuss this arrangement with your accountant or tax consultant.
Please note that the information contained in this document is designed to provide authoritative and accurate information, in regard to the subject matter covered. However, it is not provided as legal or tax advice and no representation is made as to the sufficiency for your specific company’s needs. This document should be reviewed by your legal counsel or tax consultant before use.
Additionally, the messages and content within the Pittsburgh Health Care Reform group do not reflect the advisory services of Henderson Brothers, Inc.