dollarsandstethoscopeSmall business groups are sounding a warning about an obscure Internal Revenue Service rule that takes effect July 1, 2015 imposing heavy fines on small businesses for helping defray the cost of their workers’ insurance or medical expenses. The National Federation of Independent Business said small businesses that get caught helping their workers buy insurance or pay medical bills can be fined 18 times more than larger employers that don’t provide coverage at all.

Under the rule, which the NFIB noted appears nowhere in the Affordable Care Act, employers who do not offer a group health plan, but give their workers additional pay to compensate for the purchase of health insurance or direct medical expenses, can be fined $100 per day, per employee. Over the course of a year that can add up to $36,500 per employee, up to $500,000 in total. In contrast, the penalty on businesses for failing to comply with the employer mandate is only $2,000 per year.

The National Association for the Self-Employed, an advocacy group for the self-employed and micro-business community, is calling on the Treasury Department to immediately delay the policy until the end of the year in order for bipartisan legislation to passed through Congress to remedy the situation.

In February, the U.S. Department of the Treasury’s announced a delay in the enforcement of the technical guidance issued in September 2013 for health reimbursement arrangements. The February delay expires July 1 and fines could begin to be imposed on businesses not meeting the requirement for group coverage plans that provide health care assistance for their employees through the use of traditional HRA accounts.

According to the NFIB’s research, 14 percent of small businesses that do not offer group insurance reimburse their workers instead, unaware of the potential pitfalls of the regulation.

“Reimbursing employees for the cost of insurance or medical services is a way for small businesses to help their workers without the administrative headache of setting up a costly group plan,” said the NFIB. “Most small employers don’t have HR departments or benefits specialists, so this is a simpler, easier way to help their employees.”

The NFIB noted that Congress would be able to remedy the situation by repealing the IRS rule, and there is legislation in both houses awaiting action.

For more information about this and answers to questions if this will affect your small business, please contact us today.

Source: Cohn, Michael (2015). New Tax Penalty Starts on Small Business Health Insurance. Retrieved from

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