Employer Penalty for Sending Employees to Exchange

[AllenChicago]

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.

How will the IRS track this? Gear Company, Inc. gave its 3 employees a $500 a month raise. The IRS sees this on some tax form filed by the employer, which eliminates the penalty?

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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.

I wonder what percentage of employees who aren't used to paying their own health insurance will actually use their raise to make the premium payment month-after-month?

How large does the raise have to be to avoid the penalty?

I have an appointment with a small employer tomorrow who wants to get health insurance for a new employee. (This would be the 4th employee) Right now the other 3 have the first $500 of each monthly premium paid by the employer...the remainder (where applicable) is deducted from the employee's paycheck.

Can't wait to see the official IRS wording to employers. Right now it's just a final-rule that hasn't been translated into actual instructions, has it?
ac

 

[Yagents]

Allen, you are confused. I don't know where to begin. Your employer must pay them the $500 in extra wages, and the employee cannot have premiums deducted (especially pre-tax) from a paycheck to pay for individual insurance.

 

[ABC]

The IRS is stating you can't use pre taxed dollars to purchase a plan on the exchange.

The argument of using a 105 plan is it is not an employer payment plan. It is a self insured medical reimbursement plan that complys with market reforms.

The only way this issue will be cleared up is when someone gets audited.

Then the IRS will have to prove that the current IRS law does not allow this type of arrangement.

In my real life of experience of shifting plans, I had 8 employees get a raise and then go and purchase policies on the exchange. Since the pay increase is taxed, the savings was not as much. 6 of the 8 employees had more take home pay vs group health plan contributions.

So it does not matter if one is using pre tax or after tax dollars, small employers are going to save.

 

[somarco]

How will the IRS track this? Gear Company, Inc. gave its 3 employees a $500 a month raise. The IRS sees this on some tax form filed by the employer, which eliminates the penalty?

The $500 appears on their W2, usually in a box for "other income".

The argument of using a 105 plan is it is not an employer payment plan. It is a self insured medical reimbursement plan that complys with market reforms.

105 plans under fire

Tax Reduction Letter - 2014 Attack by Obamacare on Section 105 Medical Plans (HRA Plans)

 

[timsip]

The $500 appears on their W2, usually in a box for "other income".



105 plans under fire

Tax Reduction Letter - 2014 Attack by Obamacare on Section 105 Medical Plans (HRA Plans)

The $500 would appear on the W2 as just income. This is a raise just like any other raise. We are saying that this is the only way employers can give their employees money to pay for insurance premiums. The employee obviously can use the money for whatever they want, but the employer is just trying to help the employee a bit. The only other alternative would be a true group type policy.

Edited to add:

Here is Zane's latest attempt at this:http://www.zanebenefits.com/blog/wh...DOde-iC4FmAKw3YkdE_0q5qa4_FNVQ&_hsmi=12904584

 

[RayNY]

IRS guidance states (and I quote) "...these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits..."

Employer payment plan=group health plan=non compliant

Relevant US Code 5000 (b)(1) states "(1) Group health plan
The term "group health plan" means a plan (including a self-insured plan) of, or contributed to by, an employer"

So self insured plan=group health plan=non compliant?

Am I missing something, or are these 105 plans just a different child from the same family of non-compliant "group health plans"?

Edit: 2013-54 contains guidance on HRA's and this rule. If my legalese translation is correct, it's only allowed A) if the HRA is unlimited or B) it's integrated with a true group plan.

This is beyond confusing, good thing I just recommend a nice and simple, completely compliant, group policy. I feel bad for these employers trying to cut a corner who now may be facing 5-6 figure fines.

 

[timsip]

This is what really gets me: You all might recall last fall when Congressional staffers threatened to leave their employment with Congress to find jobs that offered group coverage due to the part of the law requiring Congress and their staff to participate in Obamacare plans. This meant the stafffers were going to have to buy IFP instead of getting the highly subsidized federal government plans. Congress-members all were in a fury due to this pending 'brain drain'. All of a sudden, both sides of the aisle plus the Obama administration were able to work together to find a way to allow the federal groverment to still provide up to 75% of the premium for the employees. So, to summarize, Congress can provide tax free money to pay for IFP, but small businesses can not. This is probably the one issue in the past two decades that both parties were able to work together on and the one problem they were able to fix in less time frame less than two years.

 

[Ann H]

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.

Very well said, 1raggedhole.

It appears the answers are:
1. Buy true group insurance, with tax advantages to the Employer and Employee.
2. Give employees a raise (taxable as ordinary income) and they can do whatever they want with it. Hope that they buy insurance with it, but realize that it raised their taxable income and also raised their MAGI for purposes of qualifying for a subsidy. Hope even more that they buy an QHDHP and contribute their "raise" to the tax-deductible HSA bank account, which then lowers their taxable income and their MAGI. You can educate them about this, but you cannot tell them how to spend their "raise".
3. Don't contribute toward the employee's health insurance premiums in any fashion whatsoever.
4. Walk the edge of the cliff and try another form of "pre-tax dollars for IFP premiums" like Zane Benefits is promoting, and take the risk of being hit with serious fines from a government that is increasingly slamming the hammer down on the issue.

 

[Yagents]

Nice recap:
Can Employers Dump Workers To Health Exchanges? Yes, For A Price – Capsules - The KHN Blog

 

[unic.consulting]

I wonder if Zane offers that program to their employees? I'm looking forward to the IRS auditing them on it.