Onwer paying ACA premium through business

[ILLMAS]

Can someone with a fresh memory on ACA point me (rules) to where it's prohibited for a business (C-Corp) owner to pay his/her health insurance directly to the marketplace from the business checking account.

Thanks

[Lee B]

I don't know if it's prohibited, but I do know that that you cannot receive a Premium Tax Credit and claim a deductible

business expense. You don't say anything about number of employees etc.

More than likely the the premium paid is taxable wages to the owner

[jklcpa]

I think the problem is that it is technically considered a group health plan under the rules of the ACA when the company either pays for the premiums directly to the insurance company or when they are paid as a reimbursement like expenses used to be paid using MERPs.  I think that now either of these methods make the "plan" noncompliant with the ACA requirements. Plus, if this company has employees, the company could also have descrimination issues.  

This is an older article that was put out by CCH that I'd saved.  Link is safe: http://ftwilliam.com/articles/AcctPlans13-54.html

There are references within that article that you might want to take a look at also, specifically, IRS Notice 2013-54 and the DOL regulation 29 C.F.R. section 2510.3-1(j)

[JohnH]

Isn't the big problem exposure to the $100/day penalty if the owner pays his insurance premium throughout the business? I think that problem hung over the heads of everyone who did this after June 2015.  However, I have been reading that recent legislation eliminated the penalty.  I've been interested in it because I know someone who did this and has been very worried about the penalty - would love to give them some good news. 

[Gail in Virginia]

I saw something about this as well.  I think that it is in the 21st Century Cures Act and eliminates the penalty for employer's who reimburse their employee for health insurance instead of having the employee on their group plan.  But i only recall a mention of it and no details about how it works or what effect it will have on people who have done this in spite of the regulations for the past two years.  I too am anxious to see more.

[Lion EA]

If an employee buys insurance on the marketplace and gets his premiums partially paid due to low income, but then gets reimbursed tax-free from his employer for his out-of-pocket premiums -- don't we taxpayers get stuck with subsidizing the marketplace?!  Employee doesn't have to report his tax-free reimbursement and his W-2 stays low while his employer has a business deduction.  We taxpayers are the only ones paying?

I agree the penalties to employers were outrageous, but so is the employee who's double dipping and the employer who reimburses the low premiums subsidized by you and me.

[Lion EA]

http://www.forbes.com/sites/robbmandelbaum/2016/12/14/repealing-obamacare-just-got-harder-thanks-to-small-business-relief-in-21st-century-cures-act/#3fd8576447b0

 

[Gail in Virginia]

I don't think they exactly get to double dip that way, Lion, and the $100/day penalty is not repealed but there are exceptions now.  I still don't know the details and how it will affect employers exactly.  I do know that there were some unintended consequences and this is one that is being addressed.  NATP has a webinar scheduled for Monday and Tuesday to explain the Cure act if anyone is a member and would like to learn more about what the legislation actually says.

[jklcpa]

4 hours ago, Lion EA said:

If an employee buys insurance on the marketplace and gets his premiums partially paid due to low income, but then gets reimbursed tax-free from his employer for his out-of-pocket premiums -- don't we taxpayers get stuck with subsidizing the marketplace?!  Employee doesn't have to report his tax-free reimbursement and his W-2 stays low while his employer has a business deduction.  We taxpayers are the only ones paying?

I agree the penalties to employers were outrageous, but so is the employee who's double dipping and the employer who reimburses the low premiums subsidized by you and me.

 

Not sure how the new law may affect the answer, but under existing law found in code sec 5000A, the double dipping you asked about is not allowed. If you look at the article I linked to under the section about "what this means for HRAs" it says that if the employee is reimbursed by an employer then that represents minimum coverage, and that fact will preclude the employee from being eligible for the PTC plus the other rules that I put in bold.  The actual quote from that article:
 

Quote

 

The two integration methods are (differences are highlighted in bold):

1. Minimum Value Not Required.
   • The employer must offer other group health coverage (other than the HRA) that does not consist solely of excepted benefits.
   • Employees are only eligible for the HRA if they are actually enrolled in a group health plan (other than an HRA). The other group health plan can be offered by a different employer (such as the employee's spouse).
   • The HRA must be limited to reimbursements of copays, co-insurance, deductibles, premiums, and medical care that does not constitute essential health benefits.
   • An employee must be permitted to opt out of the HRA at least annually or to permanently opt out and waive all future reimbursements from the HRA. Upon termination, the remaining amounts in the HRA are forfeited.
   We would expect most plans to limit reimbursements to copays, co-insurance, deductibles and/or premiums since the exact meaning of "essential health benefits" is generally not well understood. We would further expect most plan will simply allow opt outs annually in order to let employees back in to the plan should their circumstances change. The Notice explains that the opt-out is required "because the benefits provided by the HRA generally will constitute minimum essential coverage under Code section 5000A (see Q&A 10 of this notice) and will therefore preclude the individual from claiming a Code section 36B premium tax credit."

    

2. Minimum Value Required.
   • The employer must offer other group health coverage (other than the HRA) that provides minimum value.
   • Employees are only eligible for the HRA if they are actually enrolled in a group health plan (other than an HRA) that provides minimum value. The other group health plan can be offered by a different employer (such as the employee's spouse).
   • The HRA reimbursements are generally not limited (other than being limited to health expenses under Code section 213(d)).
   • An employee (or former employee) must be permitted to opt out of the HRA at least annually or to permanently opt out and waive all future reimbursements from the HRA. Upon termination, the remaining amounts in the HRA are forfeited.
   Group health plans are required to disclose whether the plan meets minimum value annually with its summary of benefits and coverage notice.

 

 

 

 

 

[JohnH]

I think the $100/day penalty applied EVEN IF the income was reported to the employee.  

There was some forgiveness through June 2015, but after that there was a real risk of incurring the penalty.

That was the problem with how IRS was interpreting the rules, and it needed to be changed.

[easytax]

The CURES act negated the $100 day penalty:   

Small firms that reimburse workers for health insurance get relief.

They will not be subject to the $100-a-day-per-employee excise tax

if they do it through a qualified small-employer health reimbursement arrangement.

There are lots of hoops to jump through, and only small firms qualify…

It also extends, through the end of 2016, IRS relief that expired on June 30, 2015.

   Here is a copy of the Cures act:  HR_34 Cures Act 2016 121616.pdf

 

[Abby Normal]

I cropped that PDF

 

HR_34 Cures Act 2016 121616.pdf

[Jack from Ohio]

Does this act impact tax/calendar year 2017, or does the relief stop on Dec. 31, 2016?  The legaleze in the legislation is a bit confusing.  This is an important piece of information for planning.

[Abby Normal]

1 hour ago, Jack from Ohio said:

Does this act impact tax/calendar year 2017, or does the relief stop on Dec. 31, 2016?  The legaleze in the legislation is a bit confusing.  This is an important piece of information for planning.

It takes effect in 2017.