IRS Penalty Relief Employers Paying Individual Policy Premiums for Employees Ends June 30, 2015


Originally beginning January 1, 2014, the IRS, Department of Labor (DOL), and Department of Health and Human Service (HHS) stated that employer reimbursement arrangements designed to assist employees with individual health insurance premiums and out-of-pocket costs were a violation of provisions established by the Affordable Care Act (ACA). Accordingly, IRS regulations required that these arrangements be terminated and converted to taxable compensation. If not terminated, these arrangements could subject an employer to a substantial excise tax (i.e. penalty) of $100 per-day-per-employee.


On February 18, 2015, the IRS issued a notice to retroactively waive the $100-per-day-per-employee market reform penalty for small employers who reimburse or pay premiums for individual health care policies for their employees. This relief ends on June 30, 2015. The expiration of the relief affects small employers (less than 50 full-time and full-time equivalent employees) who directly pay or reimburse individual health insurance policy premiums for employees.


Beginning July 1, 2015, to avoid any market-related penalty, employers who directly pay or reimburse their employees’ insurance premiums will need to include those premiums as taxable compensation and withhold payroll taxes on those wages.


Guidance on Payment of 2% S Corporation Shareholder’s Individual Insurance Premiums

The IRS has also released guidance for S corporations that pay or reimburse 2% shareholders for premiums for individual health insurance policies. Based on previous guidance, there has been uncertainty about how arrangements to reimburse 2% shareholders for premiums should be treated. The new notice provides that until additional guidance is issued, at least through calendar-year 2015, the IRS will not assert the excise tax with regard to a health care arrangement of a 2% employee.


If you have any questions, please feel free to contact our office at (402) 423-4343.

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