Health Insurance Reimbursement Penalties

Dear client,

We would like to inform you about recent changes to tax penalties for health coverage reimbursments:

Businesses with arrangements to reimburse employees for premiums paid for individual health insurance policies or Medicare could be nailed by a stiff $100-a-day-per-employee excise tax.  IRS says these plans run afoul of the health reform law. The Service temporarily waived this tax for firms with fewer than 50 full-time-equivalent employees, but this relief expired June 30, 2015, and the agency has yet to announce any more waivers. S corporations are in the clear for now.  They can continue to reimburse premiums for their more-than-2% owners without fear of the excise tax until IRS says otherwise.

Legislators are sympathetic to their plight.  Sen. Chuck Grassley and Rep. Charles Boustany have each recently introduced bills in Congress to let small employers continue these types of reimbursement plans on a pre-tax basis; the American Institute of Certified Public Accountants has also weighed in.

So if the Service doesn't grant relief, it's a safe bet taxwriters will do so.-The Kiplinger Tax Letter Vol. 90, No. 14

If you have any questions regarding this law please call Holt & Patterson to discuss with a tax adviser.