Small employers who reimburse or pay a premium for an individual health insurance policy for an employee should be aware that they may be subject to a $100 per day ($36,500 per year), per employee excise tax. The Internal Revenue Service had previously provided transition relief regarding the health insurance premium excise tax, which ended on June 30, 2015.
NLG Comment: For purposes of this excise tax, the Government defines small employers as employers who are not applicable large employers (“ALEs”). An ALE generally is, with respect to a particular calendar year, and employer that employed an average of at least 50 full time employees. There are very specific exceptions to this general rule and therefore you should consult your attorney to determine whether you represent a small employer or an applicable large employer.
The Affordable Care Act (“ACA”) added ERISA § 715(a)(1) and I.R.C. § 9815(a)(1)to incorporate the provisions of part A of title XXVII of the Public Health Service Act (“PHSA”) into ERISA and the Internal Revenue Code, and make them applicable to group health plans and to health insurance issuers providing health insurance coverage in connection with group health plans. The incorporated PHSA sections are sections 2701 through 2728 (i.e., the market reforms). An excise tax is imposed on failures to meet these requirements under I.R.C. § 4980D.
RELIEF FOR SMALL EMPLOYERS
As noted in Notice 2013-54, 2013-40 IRB 287, small employers that offered their employees health coverage through arrangements that constitute an "employer payment plan" will owe a I.R.C. § 4980D excise tax if they fail to comply with the market reforms provisions. Such an arrangement that fails to satisfy the market reforms may be subject to a $100 per day excise tax per applicable employee, which is $36,500 per year, per employee. Click here to view Notice 2013-54.
But, because the Small Business Health Options Program (“SHOP”) Marketplace was still transitioning, and the transition by eligible employers to SHOP Marketplace coverage or other alternatives would take time to implement, Notice 2015-17, 2015-10 IRB 845 provided that the I.R.C. § 4980Dexcise tax would not be asserted for any failure to satisfy the market reforms by employer payment plans that pay, or reimburse employees for, individual health policy premiums or Medicare part B or Part D premiums (click here to view Notice 2015-17). This policy decision applies to small employers, again those that do not represent applicable large employers. After June 30, 2015, such employers are generally liable for the I.R.C. § 4980Dexcise tax.
RECOMMENDATION GOING FORWARD
Many employers are asking whether the Government has provided any additional guidance regarding what happens after June 30, 2015. Unfortunately, there has been no additional guidance. As we have experienced in the past, there has been very poor communication from the Government as it relates to many aspects of the healthcare reform. That poor communication continues. Thus, until we receive additional guidance, employers should not be reimbursing their employees for health insurance premiums.
CONTACT NARDONE LAW GROUP
If you are an employer, whether large or small, and you would like further advice regarding health insurance premiums for your employees, you should contact one of the experienced tax attorneys at Nardone Law Group, LLC. Contact us today for a consultation.