Over the past two weeks, we have been taking a look at an overview of the ever-developing new health care laws and how they impact small businesses. We looked at past guidelines, upcoming deadlines, and options small business employers have when it comes to providing health care coverage. We also examined three reimbursement methods for small business employers that give them choices in terms of how they will provide their employees with coverage options. For more information, visit here.
There is so much background knowledge needed to understand all of this that we thought it would be beneficial to dig a little deeper into healthcare reform regulations for small businesses. Let’s take a closer look.
Background into Healthcare Reform Decisions
Back in 2013, the Internal Revenue Service (IRS) issued Notice 2013-54. This notice defined that an employer had created an “Employer Payment Plan” considered to be a group health plan under the Affordable Care Act (ACA) when the employer reimburses an employee for individual health insurance premiums or directly pays the insurance company for this employee’s individual policy. Even still, the Employer Payment Plans will fail to comply with two aspects of the ACA—the prohibition of annual limits on an individual’s benefits and the preventive health service requirements. If these were not complied with, employers would be subject to an excise tax, according to Section 4980D, of $100 per day for each individual that doesn’t meet compliance.
On February 18, 2015, the IRS issued new guidance. Through this, transitional relief was offered to employers that reimburse their employees for the cost of premiums for individual health coverage. This also allowed for arrangements to increase employees’ compensation to help pay for the cost of these individual policies.
Caveats to the Excise Tax—Transitional Relief for Small Businesses
As defined by the IRS as employers that employed an average of less than 50 full-time (and full-time equivalent) employees on business days during the preceding calendar year, small employers were offered limited relief from the Section 4980D excise tax. For these employers only, the excise tax would not be asserted on them for failure to comply with the Market Reforms by Employer Payment Plans that we discussed above. This is applicable through June 30, 2015. In addition to being exempt from the excise tax during this period, small employers are not required to file Form 8928 solely because of the Employer Payment Plan for timeframe during which the employer qualifies for the relief. But, it is important to note that after the June 30th deadline, small employers may be liable for the excise tax, but this does not apply to reimbursement arrangements (health reimbursement arrangements and others) for medical expenses other than insurance premiums.
How Small Employers are Responding
Because of Notice 2013-54, employers don’t want to risk the excise tax by sponsoring Employer Payment Plans. Instead, many have chosen to increase after-tax compensation for employees who can then purchase their own coverage. This practice is only exempt from the ACA and is not considered a group health plan if the compensation is increased and the employer does NOT require that the compensation be used to fund health insurance. It is important to understand that employers that require the extra compensation to be used for health coverage will be considered part of an Employer Payment Plan that IS subject to the 4980D excise tax. Please note that whether an Employer Payment Plan is offered on an after-tax basis will still be subject to treatment as a group health plan.
What to do for the Future
If you, as a small employer, have Employer Payment Plans in place, you’ll want to modify them before June 30th to avoid the Section 4980D excise tax. As Beck and Company’s Certified Public Accountants and Business Advisors, we understand that you, as small business owners, want to do what you can for your employees and hope the information has helped you understand the regulations more thoroughly. To learn more about our accounting services to help you navigate through these tricky processes, visit here.
Contact us here at Beck and Company CPAs so we can help you with your unique needs as small business owners navigating the new healthcare reform regulations.