Employer Penalty for Sending Employees to Exchange

[kgmom219]

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?

Yes. They were both advised to give raises, otherwise they would be subject to the $36K.

 

[RayNY]

Thanks for the update kgmom. I must say, the more I look into this, the more it looks like your CPA friends are correct.

I can't post the links, but if anyone is a NAHU member, they have a 5/22/14 webinar concerning this topic, as well as a 20+ page analysis produced by attorneys they hired in the member-only section.

They make it very clear it applies to all employers a few times.

They also make it clear that a raise for the employee, and the employee paying post-tax dollars towards individual premium, is permissible.

 

[Ann H]

The title of the news article, "IRS Bars Employers from Dumping Workers into Health Exchanges" is misleading. Sure, one of the end results will be less dumping. But the regulation is not about dumping. The regulation is saying "NO" to the idea of using pre-tax dollars for Individual/Family premiums.

There are many threads on this forum about this issue. Before ACA, you could use pre-tax dollars through Section 105 or Section 125. After ACA, HHS said you can't, because those are technically GROUP plans with limits, and under the ACA a group plan can't have a limit on EHBs. Then 9/11/2013 a joint regulation from the IRS, DOL and HHS said, No, No, No to pre-tax dollars being used for IFP premium. Then, some companies found some apparent loopholes and used another Section of Code to do an Employer Payment Plan, saying that would work. About 90% of all Third Party Administrators, Benefit CPAs, Benefit Attorneys and other high-level experts said, "NO", but a few (most notably Zane Benefits) kept leading the effort into loopholes.

This penalty puts the "ouch" into the message by saying there is a $100 a day penalty per employee who is reimbursed for their Individual/Family premiums through an Employer arrangement to make those dollars pre-tax.

So, the bottom line is:
1. Buy true group insurance, with its tax advantages, including the ability for employee payroll deductions to be pre-taxed.
2. Buy IFP (Individual/Family Plans) with post-tax dollars, and if the Employer wants to help, they should just give the employee a raise (taxable).
3. Watch Zane and some others to see if they locate a loophole, but beware that the agent and Employer using those loopholes may find themselves on the wrong end of a clear message from IRS/DOL/HHS that the answer is "NO".

I applaud people for looking for loopholes, and I certainly hope this provision of the tax law is repealed. It is not fair for businesses to get tax breaks and not individuals. (I do think, however, that people receiving subsidies should not get a tax break for their part of the premium, due to double-dipping laws.) I think the field should be level, and both businesses and families should receive these tax benefits. However, nobody elected me to Congress! Hopefully Congress will revisit this issue. In the meantime, I've recognized the clear "NO" answer from the administration, and I won't be walking in dangerous territory.

P.S. - this penalty applies to all sizes of businesses, not just those who are 50+.

 

[RayNY]

Thanks for the clarification Ann! Your input is always appreciated =)

It's also worth mentioning, it's capped at $500,000, so you only have to pay the fine on the first 13.7 employees or so. Hopefully that doesn't bankrupt my clients that decided not to heed my advice; that's the kind of wake up call that makes clients run back to the only guy that told them the right information.

 

[AllenChicago]

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.

I'm awaiting a response from the employers. I've asked (out of curiosity) back before these latest ACA rules went into effect, but none of them knew how the premiums were being treated tax-wise. The accountant "takes care of that".

It was always against the rules/laws for businesses to pay the premium on individual plans in this state (IL) but since 2002 we've been setting up micro employers to have employees individual premiums auto deducted from the corporate account with no problems, or inquiries from the Fed or State.

Some health insurers required the employer to sign an affidavit stating that no employer money was being used to pay the premium. But that was more of a C.Y.A. formality. Interestingly, big BLUE never asked. Just the smaller ones, like IHC, GTL and Celtic.

Now Blue Cross has done a 180. For 2014 plans, they won't even send the individual bill to the employer's address...let alone draft from the employer's account. The bill can only be made out to the insured and mailed to his/her home.

This $100 per day fine that's applicable to ALL employers is what VP Biden would declare is a Big forkin deal. A game changer for a lot of employers. I hope their accountants are taking the initiative to stay current on these matters, because this new rule/law is arrived in a Trojan. Thank goodness for this forum and our astute membership.
ac

 

[1raggedhole]

The problem with list bills and employer payments is that it has always been done in a wink wink nod nod fashion.... and it has always been a violation of ERISA safe harbor laws. That was always the reason that the affidavits were needed as you say for cya. The truth is that you either have a group plan or you don't and the increased scrutiny under this law is not worth the risk for a small employer. They either need to be in a group plan or out of the business of providing health insurance for the employee. I would not pay an individual insurance bill through my business if I were a small employer. And I am. This is a problem that has been brewing for years and now the light that has been directed on it is frightening for the true small business that has been trying to provide some kind of benefits and support the employees that have been with them and help build the business. I don't see a problem with increasing salaries to give the employees the money to buy on their own. But paying an individual bill out of a business is poking the bear at this point.

 

[Yagents]

IRS: No double-dipping on tax perks for health insurance through exchanges | Modern Healthcare


"If they want to help their employees purchase insurance coverage, they can raise their salaries. But they can't tell them they have to use the money to buy healthcare," Ario said.

 

[AllenChicago]

IRS: No double-dipping on tax perks for health insurance through exchanges | Modern Healthcare


"If they want to help their employees purchase insurance coverage, they can raise their salaries. But they can't tell them they have to use the money to buy healthcare," Ario said.

Help me understand this somebody. If a small employer (1+ employees) gives the employees a raise, but can not tell him/her that they have to use it for health insurance, how does this particular employer avoid the $100@day/$3,600max IRS penalty-fine?
ac

 

[timsip]

Help me understand this somebody. If a small employer (1+ employees) gives the employees a raise, but can not tell him/her that they have to use it for health insurance, how does this particular employer avoid the $100@day/$3,600max IRS penalty-fine?
ac

It's a matter of telling employees that in lieu of health benefits, they will be paid a higher income than previously earned. Instead of one benefit, we will give you another. Since the raise is taxed, the $100/day doesn't apply.

 

[Yagents]

Because the employer is not giving the employee TAX FREE money. If given after tax through increased wages, no penalty. Employee cannot be mandated to purchase coverage with newly found raise.

On our way to paying off our 17T debt............and artificially raising wages to boot.

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Ooops, just saw your post Tim