Employers Must To Be Privy To Affordable Care Act Risks From Noncompliant Employee Health Payments or Reimbursements.

 Donald Sauder, CPA

We would like to take a moment this month to remind you of the important tax ramifications of employer compliance with the Affordable Care Act. With the previous enactment of the Affordable Care Act, and the gradual implications to your business with tax laws regarding health payments or health reimbursements for employees, effective compliance has proven challenging. Understanding and being reminded of the possible relevance to your business, is our goal.

Large employers, those with 50 or more full-time employees, or full-time equivalents are required to provide a compliant health plan option for all employees. However, each employee has the option to waive health insurance coverage.

For small employers (those with fewer than 50 full-time equivalent employees), a qualified group health plan is not required. More obscure, this is not to say that small employer are exempt from the Affordable Care Act laws. Small employers must still follow stringent new guidelines to comply with the Affordable Care Act tax laws regarding health payments for employees.

Affordable Care Act guidelines for small employers:

First, payments and reimbursements that are compliant for small employers under the Affordable Care Act laws are:

• Payments for compliant qualifying group health insurance plans. A compliant group health plan must meet the Affordable Care Act requirements, and all employees must have the option to participate. Not every health plan is a qualifying group plan. If your business has a health plan, talk with your insurance agency to inquire on your plans features for Affordable Care Act compliance.
• Increasing employee compensation, or paying bonuses to assist employees with the cost of purchasing a personal or family health plan is permissible. This can be for health insurance, health care sharing ministries, or say Amish Aid. The payments must be included as employee compensation on the employees yearly W-2’s. The payments can only be a discretionary payment, and cannot be restricted solely to health payments or reimbursements.
• An HRA that is compliant with a group health plan is also permissible.

The above are compliant payments for small employers under the Affordable Care Act.

Payments and reimbursements that are NOT compliant for small employers under the Affordable Care Act laws are:

• Payments of employee medical expenses from a business account. For instance, you cannot pay a medical expense for an employee for a work or personal incident and expense the cost in the business. Secondly, HIPPA laws prevent you from being aware of the nature of your employees’ health status.
• Payments of employee health insurance from a business account, that are not for a compliant group plan. If your plan is not a qualifying group plan, for instance, if health insurance coverage is selective for employees, the payments can subject your business to the excise tax penalty.
• Payments of employee health care sharing ministry premiums from a business account. Any payment on behalf of an employee for a health care sharing ministry, can subjects your business to the excise tax.
• Payments of church health premiums (Amish Aid) from a business account. Payments from a business account to an employee’s church can subject your business to the excise tax penalty.
• A stand-alone HRA that restricts the amount of health care reimbursement to the amount credited to the employees HRA.

Relief is not available for non-compliant small employer health payments after June 30, 2015. Penalties per day on the excise tax can be $100 per applicable employee. One employee can result in a penalty of $36,500 per year.

Due to the complexity of the Affordable Care Act regulations pertaining to employer tax compliance, it is advised that you consult with knowledgeable benefit counsel and your CPA to ensure your business is compliant with the Affordable Care Act.