CONTINUING EDUCATION FOR TAX & FINANCIAL PROFESSIONALS

New Law Cures Small Employer Health Insurance Dilemma December 19, 2016

The 21st Century Cure Act has passed Congress and the President has just approved and signed. The legislation provides for an exception from group health plan requirements for qualified small employer health reimbursement arrangements. Beginning in 2017, a small employer may again reimburse employees for individual health insurance premiums without fear of the onerous $100 per day per employee penalty assessed for violation of health care reform.

Plan Requirements
To qualify as “a qualified small employer health reimbursement arrangement,” the plan must meet certain requirements.

  • employees who have not completed 90 days of service,
  • employees who have not attained age 25,
  • part-time (less than 30 hours a week) or seasonal employees,
  • employees subject to collective bargaining.

2. The plan must be funded solely by the employer and no salary reduction contributions may be made under the arrangement.

3. The plan must provide, after the employee provides proof of minimum essential coverage, for the payment of, or the reimbursement of, medical expenses (as defined in §213(d)) of an eligible employee or the employee’s eligible family members.

4. The plan must provide that payments and reimbursements for any year be no more than $4,950 for an eligible employee and $10,000 if the arrangement provides payment or reimbursement for family members.

  • In the case of an individual who is not covered for the entire year, the limitations are prorated. For example, an employee who is covered for nine months of the plan year may have payments and reimbursements of no more than $3,712.50 (9/12 of $4,950).

Small employer
An eligible employer is one that is not an applicable large employer under §4980H(c)(2). Thus, the employer may offer a qualified small employer health reimbursement arrangement if it has less than 50 full-time and full-time equivalent employees. An eligible employer may not offer a group health plan to any of its employees.

Tax-free fringe benefit
A qualified small employer health reimbursement arrangement payment or reimbursement is not excluded from gross income if, for the month in which such medical care is provided, the individual does not have minimum essential health coverage.

Premium tax credit
For an employee who is provided a qualified small employer health reimbursement arrangement for any coverage month, the premium tax credit for that month will be reduced.

Vern Hoven, CPA, MT, is one of America’s premier tax presenters and speaks to over 100 groups a year on a variety of tax topics. He teaches at Western CPE Federal Tax Update seminars and conferences and produces self-study and webcasts courses as well. Vern consistently receives outstanding evaluations and has won numerous teaching awards, including the prestigious AICPA 2014 Sidney Kess Award for Excellence in Continuing Education.
Vern is the author of the best-selling Real Estate Investor’s Tax Guide and a favorite interviewee on radio, television, and in newspapers. His presentation skills have earned him the coveted Certified Speaking Professional (CSP) designation from the National Speakers Association, which has granted only 400 CSPs out of 3,600 NSA members as of 2006.
Vern practiced in the public, governmental, and corporate accounting fields before starting his own public accounting practice in 1973, a firm that grew to one of the largest in western Montana. In 1985, he started his present tax consulting practice. CPA Magazine recognized Vern as one of the top 50 IRS representation practitioners in 2008.

View Author Page