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Small Employers Dealt Penalties for Non-ACA Compliant Payment Plans


money and stethoscope 2, health careAlthough not subject to the Affordable Care Act's employer mandate now or in the future, some small employers (those with fewer than 50 employees) may be unaware of the $100 per employee per day excise tax ($36,500 per year) under Code Sec. 4980D for which they may now be liable. If an employer currently reimburses employees under an employer payment plan such as a premium-only health reimbursement arrangement (HRA) to buy health insurance that no longer meets Affordable Care Act (ACA) standards, the excise tax will apply. Delayed enforcement of the penalty expired after June 30, 2015.


Under Rev. Rul. 61-146, if an employer reimburses an employee's substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are generally excluded from the employee's gross income. This exclusion also applies if the employer pays the premiums directly to the insurance company. Notice 2013-54 described these health reimbursement arrangements (HRAs) as employer payment plans, which are considered to be group health plans subject to the PPACA market reforms. Excise taxes under Code Sec. 4980D apply for failure to comply with PPACA market reforms.

In February, the IRS reiterated in Notice 2015-17 the rules contained in Rev. Rul. 61-146 and Notice 2013-54, but recognized that some additional time might be needed to obtain group health coverage or adopt a suitable alternative. Notice 2015-17 therefore provided transition relief from the excise tax through June 30, 2015 for small employers.

Extension, repeal or enforcement?

The Treasury Department and IRS have been silent on whether there will be any extension of transition relief until the end of 2015. The IRS also has not indicated whether audits of small businesses will begin to focus on this issue.

According to National Federation of Independent Business (NFIB) research, 14 percent of small businesses that do not offer group insurance reimburse their workers instead. The National Association for the Self-Employed (NASE), an advocate and resource for the self-employed and micro-business community, also called on the Treasury Department to immediately delay the policy until the end of the year in order for Congress to pass bipartisan legislation to remedy the situation.

There are currently two bills (Sen 1697, HR 2911) in Congress addressing the issue: "to provide an exception from certain group health plan requirements to allow small businesses to use pre-tax dollars to assist employees in the purchase of policies in the individual health insurance market, and for other purposes," both introduced on June 25, 2015.

Darla K. Hemmann, CPAIf you have any questions about ACA penalties or other health care reform issues, contact your tax advisor or Darla Hemmann, Partner, Tax Services, at 314.983.1203 or


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