Employers who reimburse their workers for health care costs will face massive tax penalties beginning Wednesday.
Prior to the passage of the Affordable Care Act, with its mandate that all Americans purchase insurance and requirement for businesses to offer employees insurance plans, many small companies provided coverage by directly reimbursing medical costs or for the cost of private insurance plans. Businesses do it because that’s a less complicated process than dealing with an official health insurance plan, but continuing to do so after July 1 could cost them hundreds of dollars in fines each day
Businesses that offer reimbursement for health care costs could face massive IRS penalties beginning on July 1, 2015. Business groups say many small businesses might be unaware of the risk.
Business groups are calling attention to what they say is an obscure part of the ACA that could crush small businesses who are unaware of it.
“It’s the biggest penalty that no one is talking about,” said Elisa Thornton, benefits specialist for Insurance Connection USA.
The penalties will only affect businesses with less than 50 employees. Those with more than 50 employees are already required to offer a health insurance plan.
The new rule is the result of an Internal Revenue Service interpretation of part of the ACA. It seems intended to force employers to offer a group health insurance plan (or leave their employees to fend for themselves on the health insurance exchanges).
The IRS says those reimbursements are “considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.”
The end result could be fines up to $150.00 per day for each infraction.
The prohibition on employer reimbursement was supposed to start last year, but the IRS postponed implementing it until July 1.