Employer Penalty for Sending Employees to Exchange

[somarco]

Only employers with 50+ are required to offer group insurance. So to answer your question, employers with fewer than 50 are apparently not subject to this.

Although it would be interesting if an employer with 40 employees decided to drop their plan would the IRS come knocking and fine them $36k x 40 employees.

 

[Yagents]

What to make of the IRS's latest Obamacare move - Vox

A better explanation

 

[RayNY]

May we debate this "over 50 FTE" thing for a second? I totally understand that the $2000/$3000 per employee fines only apply to employers over 50, but the "non-compliance" $100 fines, as far as I know, applies to all "groups".

26 U.S. Code § 4980D - Failure to meet certain group health plan requirements | LII / Legal Information Institute
"(d) Tax not to apply to certain insured small employer plans
(1) In general
In the case of a group health plan of a small employer which provides health insurance coverage solely through a contract with a health insurance issuer, no tax shall be imposed by this section on the employer on any failure (other than a failure attributable to section 9811) which is solely because of the health insurance coverage offered by such issuer."

For reference, (a) refers to Chapter 100, the section where this noncompliance originates. (b) defines the $100/person/day penalty.

I read this to mean "Small group is exempt if they offer coverage solely through a contract with a health insurer. Groups paying individual premium are not doing this, and thus, are subject to the penalty defined above"

Edit: I feel the definition of "group health plan" is important:

(b) Group health plan and large group health plan
For purposes of this section—
(1) Group health plan
The term "group health plan" means a plan (including a self-insured plan) of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families.

"Large group plan" is a separate entry, with a defined employee amount. Inclusion of "self employed" and exclusion of an employee amount makes me think this definition applies to small groups.

 

[kgmom219]

"Large group plan" is a separate entry, with a defined employee amount. Inclusion of "self employed" and exclusion of an employee amount makes me think this definition applies to small groups.

I don't want to get into a debate, but I had 2 different CPA's tell 2 different clients (with less than 10 ee's)that they would be subject to the $36K penalty.

Reality is that the IRS probably hasn't figured it out either, so why would we advise our clients to take a chance? That's a huge penalty.

 

[Yagents]

Disallowing tax free premium contributions is for every employer, regardless of size.

Tell all of your business owners to give the employee a raise to keep their nose clean.

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I wonder what ZANE is saying now?

 

[RayNY]

Let's just consider it a "professional discussion" rather than a debate. It takes a whole lot more than one person to make sense of these extensive regulations.

Thanks for your input, professional interpretations are always appreciated.

Yagents, giving them a raise isn't that simple because of the taxation. Raise it by premium, they end up being 30% short, and get less subsidy (as applicable). Raise it by premium+tax, business is paying more than if it was a group policy, employees are getting far less subsidy (as applicable), and may even be bumped up a tax bracket.

 

[kgmom219]

I wonder what ZANE is saying now?

I needed that giggle....

 

[Justin Bilyj]

I have 3 micro-employers (<5 employees) where the employee takes their bill to the employer, who writes a check for each premium and mails them to the health insurers. Been doing this for years. Now this is illegal?
ac

Are the employees claiming the bonus as compensation, does he claim it as an expense? That could be a tax head ache waiting to happen.

 

[kgmom219]

Let's just consider it a "professional discussion" rather than a debate. It takes a whole lot more than one person to make sense of these extensive regulations.

Thanks for your input, professional interpretations are always appreciated.

Yagents, giving them a raise isn't that simple because of the taxation. Raise it by premium, they end up being 30% short, and get less subsidy (as applicable). Raise it by premium+tax, business is paying more than if it was a group policy, employees are getting far less subsidy (as applicable), and may even be bumped up a tax bracket.

The 2 clients I had that went from group to Indy, just gave their employees a raise, based on current premium contributions. (Around $2400 per employee.) Yes, there was increase to the employer due to tax liability; however, it was significantly less than their renewal increases. For some employees, it was a raise due to subsidy eligibility. Some came out about even. Some got scr#$%ed. Its NEVER going to be perfect.

 

[RayNY]

Kgmom,
It looks like a raise (with employee paying post-tax dollars for premium) is the only way to do it without incurring a fine/tax/penalty of $100/day/individual to the business.

Are these the same 2 businesses the CPA's advised would be subject to the tax?