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Employer Penalties for Reimbursing Individual Premiums

Feb 18, 2015

HR 360, Inc.
February 13, 2015
Employers Face Significant Penalties for Reimbursing Employees' Individual Health Insurance Policy Premiums

As a reminder, "employer payment plans" are considered group health plans that do not comply with the Affordable Care Act (ACA), and may be subject to a $100 per day penalty tax per applicable employee. Prohibited employer payment plans include the following:

  • Arrangements under which an employer reimburses an employee for premium expenses incurred for an individual health insurance policy.
  • Arrangements under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee.

Generally, employers can provide employees with additional cash compensation that is not restricted to the payment of medical expenses.

Due to the potential for significant penalties and the complexity of the law in this area, employers considering a cash or payroll practice option are strongly advised to consult knowledgeable benefits counsel to ensure full compliance with the law. The additional compensation would not be excluded from employees' income and would be reported with other income and wages on the Form W-2.

More information is available from the federal agencies in Technical Release 2013-03, the ACA FAQs, and IRS Q&As.

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