The IRS has taken a hard position on employer payment plans under the ACA, and now the time is up for small employers to comply. An employer payment plan generally consists of an employer agreeing to pay or reimburse an employee’s premiums (on either a pre-tax or after-tax basis) for an individual health insurance policy. In Notice 2013-54. The IRS made it clear that a pre-tax employer payment plan arrangement was a group health plan that would not satisfy the ACA reform mandates, and a joint FAQ issued by the DOL, HHS, and IRS put the kibosh on post-tax arrangements as well. Employers that continue to offer an employer payment plan face a pretty steep penalty of $100 per employee per day for each violation of an ACA mandate.
These employer payment plans have historically been popular among small employers looking to provide a health benefit for employees without the stress of sponsoring a group health plan. Recognizing everyone may not be ready for such a seismic shift, the IRS provided transition relief to small employers with less than 50 full-time and full-time equivalent employees (large employers were not so lucky) that allowed them to continue offering employer payment plans through July 1, 2015. Well, the calendar says July, so if you are still paying or reimbursing employees’ premiums for individual health insurance policies, you should quickly reassess your options. Employers can still provide extra after-tax compensation to employees (e.g., we’ll pay you an extra $500 per month because we will not be providing health insurance), as long as employees are not required to use it to obtain individual coverage or having already obtained individual coverage (e.g., show me your bill, and I’ll pay you that amount in cash). Switching to this after-tax approach may be the simplest option, but you may have other choices that would allow you to continue helping your employees without eliminating the payments entirely. Whatever you choose to do, just be sure to decide quickly or you may face a hefty penalty.