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IRS Fines In The Affordable Care Act California Employers Must Avoid

Posted by Tristan Ruhland on Jul 23, 2015 9:30:00 AM

ObamaCare-_Employer-_Mandate-_Delayed-Until_-2015-2016With the advent of the Affordable Care Act California employees and their employers have scrambled to find ways to make it truly "affordable". Now this can prove to be far more costly!

As of July 1st, 2015, small business owners who want to reimburse their employees for individual health insurance policy premiums, or even pay their health costs directly, will be fined up to $36,500 a year per employee under a new Internal Revenue Service regulation (IRS code 4980D) that went into effect.

According to the IRS notice, an employer who arranges to reimburse or pay for employee's individual health premiums is considered to have set up a "group health plan", or Health Reimbursement Arrangements (HRAs). This is now subject to the $100 per-employee per-day penalty.

The penalty applies regardless of whether the reimbursement is considered a before-tax or after-tax contribution.

With the Affordable Care Act California Employers Cannot Help Employees With Premiums

“It’s the biggest penalty no one is talking about,” said Kevin Kuhlman, policy director for the National Association of Independent Business in a recent Forbes article. “The penalty for compensating employees for health care-related expenses is enough to destroy most small businesses.”  

Currently, employers face a possible $2,000 employer-mandate penalty under ObamaCare for not providing qualifying health insurance for employees.  However, this new IRS penalty is more than 18 times greater than that amount! And, unlike the employer-mandate penalty, employers with fewer than 50 workers are not exempt.

What does this mean for a small business owner? If you have 10 employees and you wanted to simply help them pay for their individual health premiums instead of taking on the expense of providing the required health care, you could face up to $1,000 in penalties per day! That adds up to about $30,000 for a month of penalties.

The IRS Wants You To Pay - One Way or Another

The IRS rule does not appear anywhere in the Affordable Care Act. However, it was developed by the regulation writers for the Obama administration’s at the IRS. The rule specifically targets and punishes small businesses for providing health insurance support in the only way most of them can afford. For many, this means a contribution to help employees pay their required premiums for their individual or family health insurance policies, or even to help with direct payment for medical services for their employees.

“Reimbursing employees for the cost of insurance or medical services is a way for small businesses to help their workers without the administrative headaches of setting up a costly group plan,” Kuhlman said.  “Most small employers don’t have HR departments or benefits specialists, so this is a simpler, easier way to help their employees.”

But the IRS says, "No." 

Instead, as an employer, opting for an easier route that is really is affordable, means the IRS will hit you with $100-a-day fines, per-employee, until you cease and desist!

Trying to Make the Affordable Care Act Affordable - and Fair

In a bipartisan response to IRS code 4980D, a group of lawmakers have recently introduced new legislation that is intended to remove the IRS rule imposing fines on small businesses providing so-called Health Reimbursement Arrangements.

The proposed legislation would allow small business with fewer than 50 employees to continue to use pre-tax dollars to reimburse employees for health care expenses. In addition, it would protect business owners from the current penalties for providing reimbursements to their employees.

This change will also give employees a choice in selecting their own insurance from the available exchanges, usually at a much lower cost than what the employers are paying through a qualified group plan.

Get your Free Download: Payroll Outsourcing Guide click the button below and let us help you make an informed decision. Or you can call Accuchex Payroll Management Services at 877-422-2824.


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Topics: California Sick Leave Law, ca labor laws, Affordable Care Act

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