Employee Health Insurance Reimbursement

We have been working to educate our clients on the impact of the Affordable Care Act. Employers are no longer allowed to provide employees with reimbursement plans for the cost of health insurance. Employers who do not comply with this are in violation of the Act and can be subject to a $100 per day per employee excise tax. In February 2015, the IRS issued Notice 2015-17 that provided small business owners additional time to comply with the Act. Here are the important deadlines:

June 30th, 2015

Employers are no longer allowed to reimburse employees for the cost of their health insurance. Even if the reimbursement was run through payroll previously, it can no longer be a separate line item on an employee’s pay stub. Employers can work around this issue by providing a salary increase equivalent to the reimbursement for each employee. If reimbursements have occurred after 6/30 we recommend amending those payroll reports to include that reimbursement as compensation or have the employee reimburse the employer the funds.

December 31st, 2015

Employers are no longer allowed to reimburse greater than 2% shareholders for the cost of their health insurance. For most clients, we are advising to take the money as a distribution to cover the cost of their insurance instead.

The other option is to provide an employer health insurance plan. Due to the rising costs of health insurance this could be an attractive, deductible option to employers instead of raises or bonuses. Employees without employer health insurance coverage are facing rising costs as well and could appreciate the benefit.

We recommend consulting an insurance professional for your individual company needs and Act compliance requirements.