IRS Delays Penalties on Businesses That Reimburse Workers for Health Insurance

The Internal Revenue Service will delay imposing excise taxes on small businesses that reimburse their employees for the cost of buying individual health insurance policies.

These types of employer payment plans are group health plans that don’t comply with the market reforms in the Affordable Care Act, according to the IRS. As a result, employers that offer health reimbursement arrangements (HRAs) could be subject to excise taxes of $100 a day per employee.

In a new notice, the IRS said small businesses — those with fewer than 50 employees — with HRAs will not be subject to excise taxes until July 1, 2015.

The IRS said it understands “that some employers that had been offering health coverage through an employer payment plan may need additional time to obtain group health coverage or adopt a suitable alternative.” It also concedes that the Small Business Health Options Program, which was supposed to give small businesses better options for health insurance, isn’t yet fulfilling its potential.

“The market is still transitioning, and the transition by eligible employers to SHOP Marketplace coverage or other alternatives will take time to implement,” the IRS states.

Thanks for the delay in imposing the tax penalty for HRAs, but that’s not good enough, responded the National Federation of Independent Business.

“This temporary delay serves as an important immediate step to protect small businesses from costly penalties when trying to assist employees with the purchase of health insurance,” said Amanda Austin, NFIB’s vice president of public policy. “However, another delay to Obamacare does not fix the underlying problems – which the administration is conceding with these actions. We urge Congress to provide permanent relief from catastrophic penalties associated with health reimbursement arrangements and to find a solution to rising health insurance costs for small businesses.”

Around 14 percent of small businesses that don’t provide health insurance coverage use reimbursement arrangements to help their employees purchase insurance on their own, according to the NFIB Research Foundation. Penalizing HRAs limits small businesses’ flexibility when making health care decisions, NFIB contends.

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