Occasionally IRS will surprise you and do something that actually makes common sense for our small-business clients. Of course, the new Congress reducing their enforcement budget probably didn’t hurt either.
We’ve been concerned for clients ever since this post on September 9, 2013. It detailed how a $36,500 Obamacare penalty per employee could be applied to business with as few as 2 employees!
Now for the good news. It appears that we have a stay of execution until July of 2015.
Here’s the press release from IRS Notice 2015-17.
IRS has just released Notice 2015-17 which (among other things) states that they will not impose the $100-per-day Obamacare penalty on small employers who have reimbursed employee-paid health insurance premiums. This relief will cover such arrangements for all of 2014 and through June 30 of 2015!
The Notice also says premium reimbursements for S-corporation owner-employees will not be subject to the penalty pending further guidance. Until then, the IRS will continue to apply the rules of IRS Notice 2008-1 (discussed here).
Employers covered by Notice 2015-17 will not have to File Form 8928; report the Sec. 4980D excise tax; or request a waiver of the tax.
Notice 2015-17 gives a blanket waiver of the ACA penalty for “small employers,” defined here as those with fewer than 50 full-time-equivalent employees through June 30, 2015, with an “employer payment plan as described in Notice 2013-54.” The description says these occur when:
…an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee’s gross income under Code § 106. This exclusion also applies if the employer pays the premiums directly to the insurance company. An employer payment plan, as the term is used in this notice, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage.
Now some bad news that could impact your fringe-benefit planning:
Notice 2015-17 does not exempt all Section 105 plans for small employers from the penalty. “This relief does not extend to stand-alone HRAs (health reimbursement arrangements) or other arrangements to reimburse employees for medical expenses other than insurance premiums.”
The notice also provides a way to integrate Medicare premium reimbursement plans with employer group plans.
Other items in Notice 2015-17.
– The notice provides some flexibility for determining the measuring period for employers who might be on the bubble.
– The notice says that employers may give employees a raise to cover the cost of their insurance premiums, as long as the employer “does not condition the payment of the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form, or issuer of health insurance).”
– Simply putting premium reimbursements on the W-2 does not work. That will still be considered a group health plan failing the ACA “market reforms,” subjecting the employer to the penalty tax.
This is a huge (and much needed) relief provision. There are hundreds of thousands of employers who will benefit from this provision.
We are baffled by the exclusion of stand-alone Sec. 105 plans. Thousands of farms and small employers have had these plans, and the word of their ACA problems was slow to spread. Some Sec. 105 plan administrators remained in denial in 2014.
Employers not covered by Notice 2015-17 can still claim relief by filing Form 8928 and reporting a zero tax under the form instructions. It remains to be seen how lenient the IRS will be in processing these.
Many employers may want to amend 2014 W-2s and 941 filings, possibly claiming refunds. There had been some thought that the way to bring non-qualifying reimbursement plans into compliance was to include health reimbursements on the W-2 form. There is no such requirement in Notice 2015-17. Such reimbursements continue to be tax fee, even if it would trigger the employer penalty tax, and exempt it from FICA and Medicare.
The above has important ramifications on how you should handle your 2015 W-2s and compensation. Clients should contact us for details.
Remember that we’re just a click away when you need help.
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