Home » MBJ FEATURE » IRS drops a bomb on small employers

IRS drops a bomb on small employers

» Annual tax would be $36,500 per worker for noncompliance with Obamacare

By JACK WEATHERLY 

Employers with fewer than 50 employees were promised a break by not having to provide group health insurance under the Affordable Care Act.

But now the IRS has served notice that under the rule that has been in effect since July 1 such employers are subject to $100 per worker per day excise tax if they help their employees with their health-care costs.

That could amount to a staggering $36,500 per worker annual tax.

» READ MORE: Lawmakers, small businesses take steps to blunt IRS rule

“We were told over and over during the Obamacare discussions that if you had less than 50 employees  there’s no requirement to provide coverage, so you don’t have to worry about any cost factor,” said Ron Aldridge, Mississippi director for the National Federation of Independent Businesses.

There are about 2,800 Mississippi members in the NFIB and “most of them for sure”  have fewer than 50 employees,  Aldridge said.

About one in seven of the employers reimburse their employees for medical expenses, Aldridge said.

If a company has five employees, the total tax would be $182,500. A “large” employer with 50 employees that did not provide insurance in compliance with the Affordable Care Act, would be subject to $2,000 per employee, with the first 30 employees exempt, for a total of $40,000, Aldridge said.

The NFIB is backing two measures that have introduced in Congress that would address the situation, he said.

The Mississippi Department of Insurance said in a prepared statement that if the small employer helps  employees by paying their premiums, reimbursing medical expenses or raising salaries to compensate for policies bought by the individuals, the company is considered to be in violation of IRS Code Section 4980D.

A statement from the IRS to the Mississippi Business Journal stated that “these employer payment plans are considered to be group health plans subject to the market reforms [under the ACA], including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.”

The Mississippi Insurance Department said: “The rule appears nowhere in the Affordable Care Act but was developed by the Obama administration’s regulation writers at the IRS.”

“The rule punishes small businesses for providing the only health insurance support  many can afford – a contribution to help employees pay premiums for their individual or family policies or to help finance direct payments for medical services,” the department said.

The IRS issue comes at a time when the fate of the state-run insurance exchange for small businesses, called One, Mississippi, is uncertain, Insurance Commissioner Mike Chaney said in an interview.

“One, Mississippi has got to be sustainable,” Chaney said. The potential problem is that Aetna is seeking to buy Humana, which is one of the two insurers in One, Mississippi, he said. “If they buy Humana, they may pull out of the state,” leaving only United Healthcare in the pool. If that happens, there  is a “distinct possibility” that the state will not be able to find a replacement.

“I cannot see the state of Mississippi putting any money into” the pool “and, politically, I’m not certain that the Legislature will let us put any money into it.” The pool has been propped up by federal grants, Chaney said.

State and federal regulators will meet this week in Chicago to talk with Aetna and Humana. While the state officials will have no official say, the federal regulators will hear their comments, Chaney said.

Pepper Crutcher, a Jackson lawyer with Balch & Bingham who specializes in ACA compliance, said that, while the IRS situation looks dire, “my guess is there will be a congressional fix” and President Barack Obama will approve it.

Aldridge’s take: “Something needs to be done quickly before our No. 1 job creators are left holding the bag and are put out of business.”

About Jack Weatherly

15 comments

  1. Andrew Jake Mladinich III

    “employers are subject to $100 per worker per day excise tax if they help their employees with their health-care costs.”
    Are you sure it was not an IRS typo?
    [employers are subject to $100 per worker per day excise tax if they “do not” help their employees with their health-care costs.]

    • Not a typo; article is saying that, if smaller than 50, they have to either stay out of health care entirely or provide group health care in compliance with ACA.

      • Andrew Jake Mladinich III

        Thank You Jon,
        Ok, in my memory, the small employers that were under 50 that I worked for in my past would love that. In fact, I remember their claim that because they were small they wanted to be exempt for being forced to provide and contribute to insurance.
        Is this not what they wanted?

  2. Correction—- The Studio did not take away the $50 amount but were given . 31 cent raise to compensate for the $50 insurance amount. 🙂

  3. Employer Health Care Arrangements
    Q1. What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?
    Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.

    Link: http://www.irs.gov/Affordable-Care-Act/Employer-Health-Care-Arrangements

    In other words, if the employer provides group health plans than they are subject to “market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.”

    Employers who claim they are not providing group health plan cannot then have an arrangement of providing health care or paying for health care on the sly.

    In other words – you can’t have your cake and eat it too. If employers want to provide their employees with health care then they should do so under the government health reform act.

    Get it now? Not sure why the right-wingers have such a hard time understanding this fact.

    • What would be the point of paying anything” on the sly” . None. All this is is more regulations and unfunded mandates that no one can afford. Shameful.

  4. If you like your plan you can keep your plan. Period. If you like your doctor you can keep your doctor. Period.

    The government has decided to make it a habit to lie to citizens.

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