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IRS Changes ACA Compliance Rules for Small Employers

February 24, 2015

IRS issued relief for small employers from the excise taxes that could be imposed for non-compliance with the ACA.

On February 19, 2015, the IRS issued relief for small employers from the excise taxes that could be imposed for non-compliance with the ACA. Notice 2015-17 could be helpful to many small employers and includes updates to:

  1. Employer reimbursement plans for small employers will be allowed through June 30, 2015 without imposition of the excise tax. Prior to the ruling, the IRS’ position was that programs that reimbursed employees for their individual purchases of health insurance constituted a ‘plan’ for purposes of the ACA, and would therefore be subject to its provisions, regardless of the size of the employer. With the notice update programs offered by employers who are not otherwise subject to the ACA (employers with less than 50 full time equivalent employees) can offer reimbursement programs during the first six months of 2015 and not be subject to ACA excise tax. These programs can include reimbursement for individual policies, group policies and policies that provide Medicare Part B and D coverage.
  2. S-corporation shareholder reimbursement arrangements will not be subject to excise tax in 2015 (IRS Notice 2015-17, 2015-10 IRB). Under prior guidance, the 2% shareholders of S-corporations who are reimbursed for the cost of their individual health insurance policies were subject to ACA excise taxes. There has been hesitation about how arrangements authorized under IRS Notice 2008-1 to reimburse 2% S corporation shareholders for premiums should be handled. According to the new notice, until additional direction is released, and at any rate through the 2015 calendar year, the IRS will not assert the excise tax under IRC Sec. 4980D for a 2% S Corporation shareholder employee’s healthcare arrangement.
  3. Employers can offer coverage or reimbursement for individual policies providing coverage under Medicare Parts B and D if certain conditions are met. Prior guidance provided that employers who offered some type of coverage or reimbursement for Medicare Parts B and D coverage would violate the terms of the ACA, and subject the employer to excise tax. Now, a program that provides Medicare premium payment reimbursements (either directly or indirectly) will not be subject to the excise tax if certain requirements are met.

The IRS also stated that a program in which the employer increases taxable pay, but does not require that the employee purchase health coverage to receive the pay increase, is not a program that will be subject to the ACA. If you have additional questions about the ACA, please contact us.

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