EMPLOYERS CAN NO LONGER REIMBURSE EMPLOYEES FOR THE COST OF INDIVIDUAL HEALTH INSURANCE COVERAGE
Some employers have not provided group health coverage to some or all of their employees. Instead of providing group health coverage, some of these employers have chosen to reimburse employees for the cost of individual coverage that those employees purchased directly from insurance companies. Prior to 2014, the IRS permitted employers to reimburse employees for the cost of the individual coverage and to deduct the reimbursement expense. The IRS also agreed that the employees would not be taxed on the amount of the reimbursement. Obamacare changed that tax treatment beginning in 2014.
In a May 13, 2014 guidance, the IRS stated that employers who offer standalone premium reimbursement arrangements in violation of their guidance and the related regulations will be subject to a $100 per day per person penalty. This penalty is considered an excise tax, and therefore is not a tax deductible business expense for the employer.
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