The transition relief that has temporarily suspended tax penalties for employers with 50 or fewer employees will expire on June 30, 2015. As a result, employers offering an “employer payment plan” may now be subject to an excise tax under the Internal Revenue Code This tax penalty is $100 per day, per employee receiving the reimbursement. However, if a violation is unintentional and due to “reasonable cause,” and not “willful neglect,” the penalty is equal to 10% of the amount paid by the employer for group health care costs, with a maximum penalty of $500,000.
In March 2015, the IRS released new guidance relating to “employer payment plans,” potential tax penalties associated with such plans and the pending expiration of the transition relief that has temporarily suspended tax penalties assessed against certain employers (“IRS Guidance”). An employer payment plan is a structure under which an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital or medical insurance, or pays the premiums directly to the insurance company on behalf of the employee. In the past, this benefit was considered to be a “group health plan,” and was thus tax-free. In 2013, however, the IRS concluded that employer payment plans do not comply with the market reforms imposed by the Patient Protection and Affordable Care Act (“Affordable Care Act”).
The IRS Guidance temporarily suspended the excise tax through June 30, 2015 for employers that are not considered “applicable large employers” under the Affordable Care Act. The tax suspension period covers employers who paid or reimbursed employees for individual health policy premiums in 2014, and for the period between January 1, 2015 through June 30, 2015. This temporary suspension was designed to allow employers to make the necessary changes to their health care plans before incurring penalties. With this transition relief set to expire soon, employers who currently offer employer payment plans should be aware that if they do not bring their plans into compliance with the Affordable Care Act before the June 30, 2015 deadline, they may be subject to significant monetary penalties after that date.
Because this transition relief applies only to employers who are not “applicable large employers”, accurately determining an employer’s status as an applicable large employer is critical. Generally, an “applicable large employer” is one who employs an average of at least 50 full-time equivalent employees during the preceding calendar year. However, determining whether an employer falls within this pivotal definition requires application of additional sections of the Affordable Care Act and a fact-specific analysis of an employer’s full-time and part-time employees, including the number of hours each employee worked over the course of weeks or months.
For more information about this IRS Guidance, employer payment plans or the implications the Affordable Care Act may have on your company, contact Michelle B. Ferguson at firstname.lastname@example.org.
What is written here is intended as general information, and is not to be construed as legal advice. If legal advice is needed, you should consult a lawyer.