Did You Know You Can Reimburse Your Employees for Individual Health Insurance?
- Thread starter Zane Benefits
- Start date
- 10,817
The Safe Harbor provision for doing this is ending. So it is a moot point. Violations could result in a $100 per employee per day excise tax.
- Thread starter
- #13
Zane Benefits
Expert
Great Question -
Here's how it can work (compliantly).
Employer sets up a Section 105 Plan (ex: a compliant "Healthcare Reimbursement Plan") to give employees an allowance for health insurance.
Employees purchase health insurance (with their own funds).
Employee is reimbursed for their premium, up to the amount available in their allowance/plan.
Reimbursements received by the employee are tax-free. Reimbursements issued by employer are tax-deductible.
Important Note: The Section 105 Plan must be designed specifically to comply with the ACA Market Reforms. This is an important piece to avoid the "$100/day" fines.
Here's a handy visual chart showing how this can be done: eBook | The Small Business Guide to Individual Health Insurance Reimbursement
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This is a common misconception. To help, as long as the plan complies with the Market Reforms (preventive care and annual limit rules), fees can be avoided.
Here is a helpful flowchart showing a compliant reimbursement plan vs. a non-compliant one... and how clients/employers can transition to a compliant plan.
Chart - Are We Reimbursing Employees' Health Insurance Correctly?
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Thanks for the feedback. Reach out to us anytime. We'd be happy to discuss our audit assurance or any specific compliance questions you have.
See also - ZaneHealth Frequently Asked Questions
- Christina
- 4,132
To the Zane guy...
I have discussed your concepts with a CPA client of mine as a possibility. The fact that you haven't tested or been tested yet by the IRS makes your concept a risky choice. As the IRS can go back in time if they rule against your concepts and fine employers from the start of your program. The CPA pointed out the IRS has done this many times with different things over the years and he is not willing to recommend your concept to clients.
Not debating if what you're offering is good or bad. I am simply stating until you can either guarantee protection to each client you sign up from the cost of an IRS penalty or have an actual ruling in your favor from the IRS. I would avoid sending business your way.
Till the IRS says you're golden on this, I am afraid I have to pass or you offer up a financial guarantee for accounts that Zane will pay any penalty incurred and actually set aside those funds to pay IRS penalties so you can't just fold up shop and walk.
I have discussed your concepts with a CPA client of mine as a possibility. The fact that you haven't tested or been tested yet by the IRS makes your concept a risky choice. As the IRS can go back in time if they rule against your concepts and fine employers from the start of your program. The CPA pointed out the IRS has done this many times with different things over the years and he is not willing to recommend your concept to clients.
Not debating if what you're offering is good or bad. I am simply stating until you can either guarantee protection to each client you sign up from the cost of an IRS penalty or have an actual ruling in your favor from the IRS. I would avoid sending business your way.
Till the IRS says you're golden on this, I am afraid I have to pass or you offer up a financial guarantee for accounts that Zane will pay any penalty incurred and actually set aside those funds to pay IRS penalties so you can't just fold up shop and walk.
- 514
The CPA giving wrong advice regarding ACA is subject to minimum $500 fine by gvmt if they are caught according to what my CPA told me. so they are going to be extra careful here.
- 213
Maybe there should be insurance for ACA penalties. If derivatives can be insured, anything can.
- 948
Easy answer here is not to use the Zane solution until there's confirmation it's legal and sanctioned by IRS. Otherwise you leave your client financially exposed. 'Nuff said. . .
Yep. I think Zane should offer evidence in the form of a private ruling letter from the IRS or specific evidence in the code. Otherwise Zane Benefits discredits itself with reckless advice.
- Thread starter
- #19
Zane Benefits
Expert
Great feedback. We currently offer an audit assurance and are happy to help walk you or your clients through any compliance questions. Do you have any specific questions? I am happy to help answer them.
- Christina, Zane Benefits
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Thanks, all for the candidate and humorous discussion! Didn't mean to leave you all hanging there for a minute.
I've replied to some of your specific questions on ZaneHealth. I am happy to answer any specific questions on compliance or the new Market Reforms.
It looks to,me what you are proposing is self defeating.
Assuming the IRS gives its blessing you are still having the employer provide a group insurance plan that disqualifies the employees and there DEPENDENTS from tax credits to purchase individual health plans. The whole point is to get the tax credits of the individual plans. The employers and employees would still be better off having the employer funding employees HSA plans . It's the only way to tax deduct employer contributions and Not disqualify employees from tax credits...
Assuming the IRS gives its blessing you are still having the employer provide a group insurance plan that disqualifies the employees and there DEPENDENTS from tax credits to purchase individual health plans. The whole point is to get the tax credits of the individual plans. The employers and employees would still be better off having the employer funding employees HSA plans . It's the only way to tax deduct employer contributions and Not disqualify employees from tax credits...
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