Employers who give money to their workers to help pay for insurance through Obamacare exchanges may be in for sticker shock when the taxman comes calling: the IRS considers such arrangements employer payment plans that don't satisfy federal rules.
That could cost employers an excise tax of $100 a day, up to a grand sum of $36,500 per year per employee affected, the IRS confirmed
in a "Q&A" on its website earlier this month, which in the case of larger businesses could ring up taxes of millions of dollars.
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This means employers cannot hand tax-free contributions to their workers and tell them to purchase health insurance, The New York Times reports, as it is considered a violation of the Affordable Care Act's mandate that large employers provide health insurance coverage to their full-time workers.
"Under IRS Notice 2013-54
, such arrangements are described as employer payment plans," the IRS Q&A entry said. "An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation."
Notice 2013-54, dated last Sept. 13, says the plans are considered group health plans that are subject to market reforms, "including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing."
Because such arrangements can't be integrated with individual policies, the IRS notice says, employers "may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee)," the Q&A says.
"The targets of this particular Q&A are employers who maintain "non-integrated" "employer payment plans," Porter Wright Financial Consultant Ann Caresani
says of the IRS entry.
"These are new terms, which include reimbursement plans such as health reimbursement arrangements (HRAs, excluding retiree-only and excepted benefits HRAs). Those should generally have been eliminated by Jan. 1, 2014, or amended to be integrated with group health coverage," she said.
Caresani noted that federal agencies "dropped this bomb" on employers in the weeks before open enrollment began.
"You could have done the math on the $100-per-day excise tax. But the IRS puts this $36,500 figure into a Q&A for a reason: it wants to scare you," Caresani said. "And employers need to know that a non-integrated employer payment plan is just one of many potential triggers of these potentially devastating excise taxes."
The ruling comes as a blow to many employers who gave their workers tax-free cash contributions to purchase coverage. Andrew Biebl, a tax partner at CliftonLarsonAllen in Minneapolis, said the idea of giving workers money to buy their own insurance preceded Obamacare.
"For decades, employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs," Biebl told the Times. "The new federal ruling eliminates many of those arrangements by imposing an unusually punitive penalty."
Theoretically, an employer can still hike the salary of a worker and tell him to buy insurance with the additional money. However, the added compensation is taxable on both ends and may be challenged by the workers as a reduction in their benefits, said Christopher Condeluci, who previously served as a tax and benefits counsel to the Senate Finance Committee.
The federal government has already postponed the enforcement
of its mandate that employers with 50 or more full-time employees provide insurance for full-time employees until 2015,and the individual mandate until October 2016. Failure to comply with the coverage mandate carries a penalty of up to $3,000 per employee.
But the recently emphasized $100-a-day excise tax is separate from that fee, and will be assessed on employers who fail to provide plans that meet Obamacare reform standards.
Meanwhile, the Department of Health and Human Services announced it would offer financial assistance to certain insurers who've suffered losses because of Obamacare. The goal is to keep premiums from rising in an election year, the Times reported.
Republicans say the policy amounts to a bailout in return for the industry's support of Obamacare.
Separately, the department restricted states from establishing burdensome qualifications on insurance counselors or "navigators" whose job is to assist enrollees registering for Obamacare if the requirements interfered with implementing the federal law, the Times reported.
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