On February 18, 2015 the IRS issued Notice 2015-17 which provides limited transition relief from $100 per day, per employee excise taxes under Internal Revenue Code § 4980D that otherwise would apply in 2014 and 2015 to certain arrangements under which employers subsidize individual health insurance coverage, whether through reimbursing employees for premiums paid, or paying them directly to the carrier. The guidance, which was issued with the support of the Departments of Labor and Health and Human Services, refers to these arrangements as “employer payment plans.” The main problem that employer payment plans have is that they generally constitute “group health plans” for ACA purposes, but unless they are paired or “integrated” with ACA-compliant group health coverage they fail to meet ACA market reform requirements, including the requirement to cover preventive care, and the prohibition on an annual dollar limits. I have attached an updated chart of “Disallowed Pay or Play Tactics” to reflect the transition guidance; this prior post discusses the chart in its original form. The main takeaway points are listed below; please note in all regards that a “group health plan” is one that covers 2 or more active employees:
- Employers that are not “Applicable Large Employers” (ALEs) will not be subject to excise taxes in relation to an employer payment plan that reimburses employees on a pre-tax basis for individual health insurance premiums (or pays the premium directly) that is maintained in 2014, or is maintained between January 1 and June 30, 2015.
- For the relief to apply in 2014 the employer must not be an ALE for 2014, which means that they did not employ 50 or more full-time employees, including full-time equivalents (FT/FTE), on average, based on any period in 2013 of at least 6 consecutive months.
- For the relief to apply from January 1 – June 30, 2015, the employer must not be an ALE for 2015, which means that they did not employ 50 or more FT/FTE employees, on average, based on any period in 2014 of at least 6 consecutive months.
- Note that this is “transition” relief which implies that the employer payment plan predated the guidance issued on February 18, 2015.
- There is no transition relief for employers that are Applicable Large Employers maintaining pre-tax individual premium reimbursement plans. They are subject to the excise tax for 2014 and 2015 and must pay and report it on IRS Form 8928.
- Post-tax reimbursement or payment of individual health premiums remains a non-ACA-compliant employer payment plan that is subject to excise taxes. No transition relief applies.
- However, no excise taxes will apply if an employer simply increases employees’ taxable compensation in order for them to pay for individual health premiums, without conditioning the extra compensation in any way on payment for premiums. An employer may communicate with employees about health exchange coverage and premium tax credits without violating this rule.
- Until further notice from the IRS, an arrangement that pays directly for an individual health policy in the name of a 2% or greater S-Corporation shareholder, or reimburses the shareholder for premium costs, is not subject to excise taxes as a non-ACA compliant employer payment plan. The IRS plans to issue further guidance on the impact of ACA market reform provisions on these arrangements, and on federal taxation of health benefits to 2% S-Corporation shareholders generally.