Not sure if my future ACA client's employer is McGyvering their sort of HRA lite

[yorkriver1]

My first pass at reading the paragraph from the employee handbook, the only place this is in writing, there is no official document HR could supply, seemed to be like the bonus method. As in, we give a taxable bonus, you can use as you like, and health care is one way. Then I read further and it says that if it's used for health insurance, it would be pretax and if not, is taxable. The money intended for health insurance is given based on hours worked, about $4.50 per hour worked. The intent is, according to the handbook paragraph, to comply with Affordable Care Act. How this would be compliant is puzzling.
How to reconcile this with Healthcare.gov tax credits is the issue. If it's actually working like an HRA, there are all those choices on healthcare.gov application. If not, then it's income, sort of (?), given the supposed pre-tax nature of the grant. I have turned this over to my FMO's compliance officer and the department that does Section 125 and HRA's, so I am not without expert guidance. Looking for anyone here who can weigh in.

 

[scagnt83]

What does the W2 say? Not up to you to do their taxes for them. Just go with what the 1040 says.

As to the bonus arrangement, if its not an HRA its taxable. It could be a self administered HRA so there might be limited documents available, and the employer just offers it as a bonus for employees that dont need it for healthcare so they choose which one when getting reimbursed.

Are you sure it didnt say "could" be tax-deductible if used for healthcare? I mean, anyone can write off healthcare expenses if they meet the income % threshold... which most dont.

 

[yorkriver1]

What does the W2 say? Not up to you to do their taxes for them. Just go with what the 1040 says.

As to the bonus arrangement, if its not an HRA its taxable. It could be a self administered HRA so there might be limited documents available, and the employer just offers it as a bonus for employees that dont need it for healthcare so they choose which one when getting reimbursed.

Are you sure it didnt say "could" be tax-deductible if used for healthcare? I mean, anyone can write off healthcare expenses if they meet the income % threshold... which most dont.

I have let them know to discuss this with their CPA, who can't figure it out and said not to worry. That worries me about the CPA.
The employer document says that the money for "fringe benefits" could be taxable if "not used for health insurance".
Also the document says that they follow rules of the Affordable Care Act, though not specifying which ones are involved with this. They direct employees to go enroll in coverage they can find for themselves. If it intended to be an HRA and since the employer says they have no documents about that, then, wow.

 

[LeeV]

I too am confused. It is my belief that HRA's can be used for health expenses only, and comes with a favorable tax event. If it were an HRA, there should not be any discussion about taxable and non-taxable. From an arms-lengths, and minimal information, it does appear that this employer does not know what they are doing.

 

[yorkriver1]

I too am confused. It is my belief that HRA's can be used for health expenses only, and comes with a favorable tax event. If it were an HRA, there should not be any discussion about taxable and non-taxable. From an arms-lengths, and minimal information, it does appear that this employer does not know what they are doing.

Agreed. Unfortunately they have a number of employees who will go to Healthcare. gov and get a tax credit. The employer could potentially be in for some fines for setting themselves up as a "plan sponsor" by the wording they are using in other words giving money that is to be used for insurance instead of a general bonus, in the meantime the employees could owe back the tax credit. My client's accountant as I stated before told them not to worry. I want to stay away from being involved in this if it blows up. My group partner at a GA with expert compliance specialists has agreed to help the employer if we can get to them. Long shot.

 

[LeeV]

Just a suggestion, but it might be best for you to extricate yourself completely from this group and the employer. If this goes south on the employer, there will be many people blamed and pulled into it. If this were me I would send the employer/contact a letter explaining why you believe their actions are incorrect and that you do not want to be involved. I would be more than willing to help, but only if they change.

Good luck with this. Lee