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Law360, New York (February 18, 2015, 5:58 PM ET) – The Internal Revenue Service on Wednesday said it would waive for 2014 and half of 2015 a penalty of $100 per day per employee on small employers who provide health plans under which they reimburse workers for individual insurance premiums.
The so-called employer payment plans do not comply with regulations under the Affordable Care Act, but the IRS said it would provide relief from the Internal Revenue Code Section 4980D excise tax penalty for business with fewer than 50 full-time employees for 2014 and through June 30 of 2015.
Employer payment plans “fail to comply with the market reforms and may subject employers to the excise tax,” the IRS said in Notice 2015-17. “At the same time, the departments understand that some employers that had been offering health coverage through an employer payment plan may need additional time to obtain group health coverage or adopt a suitable alternative.”
Increases in employee salaries to cover the costs of health insurance do not constitute employer payment plans that are subject to the penalties if the employer does not endorse a particular insurance plan, according to the guidance, which the IRS released as a Q&A. However, payments made by employers on an after-tax basis to reimburse employees for the costs of health insurance plans do count as employer payment plans, the IRS said.
The IRS in 2013 announced that employer payment plans do not comply with market reforms made under the ACA and would be subject to the 4980D excise tax. Under the tax, employers are penalized $100 per day per employee if they do not provide a health insurance plan that complies with several criteria such as no annual limits on benefits.
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The agency on Wednesday said it was considering issuing further guidance on the application of the market reforms to S corporations that reimburses a 2 percent shareholder for the cost of insurance premiums. Until then, the IRS will not impose the 4980D excise tax on the arrangements, the service said. The guidance does not apply to S corporation employees who are not 2 percent shareholders, it said.
The government has announced relief from several penalties under the ACA as the health care reform law has taken effect. Last month, the IRS said it would waive for one year penalties on taxpayers who received more tax credits to pay for health insurance than they were owed and who do not repay the excess by the tax filing deadline.
The ACA imposes a penalty on taxpayers who do not give back to the IRS overpayments of advance premium tax credits. The IRS said it will waive the penalty for the 2014 tax year for those who are otherwise current on their taxes but who are not able to pay the entire balance by the April 15 due date. The agency also said it will waive the penalty for underpayment of estimated tax. Taxpayers will still be have to pay back the excess payments, the service said in Notice 2015-09.
–Editing by Katherine Rautenberg.
