Are you reimbursing your employees for medical insurance on a pretax basis? You need to stop effective June 30, 2015. The reason is complicated, but the penalty is not – $100 per day. If you have a situation in which you are reimbursing employees for insurance other than on an after-tax basis, whether it be individual, COBRA, spouse coverage, or whatever, you should stop immediately to avoid incurring the $100-per-day penalty.
A goal of the Affordable Care Act (ACA) was complete reform of the country's health insurance market. Any insurance reimbursement arrangement now has the appearance of a "benefit plan" and therefore would be in violation of the requirements of the ACA according to the IRS and Department of Labor.
This provision is to make sure that your arrangements with employees or shareholders do not look like a benefit plan, meeting the requirements of the ACA. There are several ways to do this, such as:
1) Purchase group coverage.
2) Increase employee wages without requiring that they use the money for health insurance.
3) Stop providing such benefits if you are not required to provide them.
According to the Department of Labor, recharacterizing the reimbursement as taxable compensation to the employee does NOT correct the situation. It still has the characteristics of a reimbursement plan.
If you need further explanation, please contact our office.