AFFORDABLE CARE UPDATE AND CLARIFICATION
“Can I reimburse my employees for their personal health insurance premiums?”
The Affordable Care Act (ACA) has encouraged the Department of Labor (DOL) to add another health care requirement that employers must be aware of for 2015. The DOL guidance, issued just after the November elections, puts strict limits on the ability of employers to bypass group plan rules by reimbursing premiums or using Health Reimbursement Arrangements (HRA) under Section 105 – meaning reimbursement arrangements, even if reported as taxable to the employee, represent a violation of the ACA rules.
WHAT DOES THIS MEAN?
Beginning in 2015, it is imperative that you NO longer reimburse employees for the health care policies that they own or for policies purchased through an exchange. Violating this rule carries penalties of $100 per day per employee!
WHAT STEPS SHOULD I TAKE?
The DOL regulation applies to employers with MORE THAN ONE employee. The following is a brief summary of the DOL guidance and what steps you should take:
1. NO employee should be reimbursed for their personal health care policy.
2. DISCONTINUE any existing reimbursements of employee individual health insurance policy premiums.
3. RESCIND any written plan documents regarding an HRA.
4. RECHARACTERIZE any reimbursements paid in 2015 as taxable compensation.
5. It is recommended employers DO NOT have any payments to employees that could even appear to be a reimbursement for health insurance, such as:
a. Additional compensation offered with conditions that the compensation be used to purchase health insurance. Instead, provide raises across the board that have no restrictions and no reference to health insurance.
b. Rises in the amount of the employee’s annual health insurance cost increase.
WHAT IF I AM THE OWNER (2% SHAREHOLDER)?
In addition, we had provided previous guidance regarding how more than 2% shareholders should report health insurance premiums on their W-2’s. Here are a few more items to be aware of:
1. If you, the Owner, are the ONLY employee, insurance premiums can be reimbursed if you have a personal policy. Continue to report the premiums on Form W-2 as wages.
2. If you have MORE THAN ONE EMPLOYEE, personal policies should NOT be paid from the company, but should be paid from your personal funds.
3. DO NOT pay the insurance company directly from the company. As noted above, use personal funds.
If you have any concerns regarding your current insurance arrangements, please do not hesitate to call FRSCPA. David Oliver, CPA or Martha Ford, CPA can be reached at 1-800-457-1120.