IRS Notice 2015-17 provided limited transition relief from the assessment of excise taxes for small employers who reimburse, or directly pay, the premium for an employee’s individual health insurance policy. The transition relief applies through June 30, 2015.
An “employer payment plan” is an arrangement under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee. Pursuant to prior agency guidance, employer payment plans are generally considered group health plans that do not comply with certain market reforms of the Affordable Care Act (ACA), and therefore may be subject to a $100 per day excise tax per applicable employee under the federal tax code.
The transition relief applies to employer healthcare arrangements that constitute employer payment plans if the plan is sponsored by a small employer—generally an employer with fewer than 50 full-time employees, including full-time equivalents, as determined in accordance with the “pay or play” rules.
An excise tax will not be asserted for any failure to satisfy the ACA’s market reforms by employer payment plans sponsored by small employers that pay, or reimburse employees for individual health policy premiums (or Medicare Part B or Part D premiums):
- For 2014, for employers that qualify as small employers for 2014; and
- For January 1 through June 30, 2015, for employers that qualify as small employers for 2015.
After June 30, 2015, such employers may be liable for the excise tax.
Notice 2015-17 also clarifies that employers can generally increase an employee’s compensation to assist with payments of individual market coverage, so long as the payment of additional compensation is not conditioned on the purchase of health coverage and the employer does not otherwise endorse a particular policy, form, or issuer. Due to the potential for significant penalties and the complexity of the law in this area, employers considering a cash (or payroll practice) option are strongly advised to consult knowledgeable benefits counsel to ensure full compliance with the law.
Be sure to visit the Cash for Premium Payments & Other Problem Plans section of your online HR library for more.