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Employer Reimbursement of Individual Health Insurance Premiums

Under prior law, employers have been permitted to make tax-free reimbursements of premium payments made by employees for their individual accident and health insurance (subject to documentation by the employee).

Substantial Change under ACA

Under the Affordable Care Act (ACA), reimbursement (or employer payment) of premiums for an individual health plan is not in compliance with the benefit and cost-sharing requirements of the ACA.  (Premium reimbursement for coverage under a spouse’s group health insurance plan is in compliance.)

Substantial Penalty

Plans that are not in compliance with the ACA provisions are subject to a $100 per day per employee excise tax penalty under the act.

Transitional Relief until June 30, 2015

A new IRS notice provides transitional relief from the excise tax that will apply to reimbursements that cause the employer to violate the group plan rules of the ACA.[1] In order to qualify for this relief, the employer must have fewer than 50 Full Time Equivalent employees, and the relief from liability will only extend through June 30, 2015. After that date, all employers will be subject to the steep excise tax imposed on employer payment plans that reimburse health care premiums for an employee’s individually purchased insurance.

If you are reimbursing individuals for individual health insurance premiums, please contact us about the tax consequences and recommendations for avoiding penalties by June 30, 2015.

[1] Notice 2015-17, 2015-10 IRB, 02/18/2015, IRC Sec(s). 105