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Large Penalties Await Employers Who Reimbursed Certain Employee Health Insurance Premiums In 2014

Do you have people – as in, more than one – working for you? If so, you’re probably knee deep in preparing Forms W-2 for your employees before the January 31st deadline. Well, what if I told you that when you send in those forms, unless you’re aware of an under-publicized change to the insurance and tax laws that took place on January 1, 2014, you might be exposing yourself to tens or even hundreds of thousands of dollars in penalties? And what if I told you that even if reading this column makes you aware of the required change, there might not be anything you can do at this point to avoid these huge penalties, other than to hope for IRS leniency?   Piqued your interest, didn’t I.  Well, read on . . .

The primary goal of the Affordable Care Act — or as it’s less formally known, Obamacare – is nothing short of total and complete reform of the country’s health insurance market, with the hope of putting affordable health care coverage within the reach of every American.

Such a noble – or foolhardy, depending on your point of view- pursuit requires significant restrictions be placed upon the insurance industry, and drastic changes be made to the way employers provide for their employees. The effect these reforms have on the tax law have been unpredictable, and in many cases, potentially disastrous.

To wit: small employers have often loathed purchasing group health insurance for their employees. The plans can be expensive and unwieldy to administer, and often times, employees prefer the coverage they receive on plans they purchase individually.
As a result, many employers eschew group coverage, and instead provide what has become known as an “employee payment plan.” In an EPP, the employer encourages the employees to purchase their own insurance, submit the amount they paid for the premiums to the employer, and the employer then reimburses the employees.

As we’ll discuss below, for over fifty years, not only have EPPs been permitted, but if accounted for appropriately by the employer and employee, the reimbursements have been tax-free to the employee.
Courtesy of Obamacare, however, everything’s changed. Use an EPP, and starting January 1, 2014, an employer will be subject to a $100 penalty, per day, per employee under Section 4980D. Yes, that’s $36,500 per employee, and yes, that penalty can be applied beginning with January 1, 2014, which the last time I checked, was over one year ago.

This means we’d better figure out what works and what doesn’t pronto, but in order to do that, we’ll have to navigate the interplay between long-standing IRS authority with recent, ambiguous guidance issued by both the Service and the Division of Labor.  Read Source Article

 

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