New IRS Healthcare Rule Targets Small Biz

Posted July 7, 2015 at 7:29 pm

A new IRS regulation has targeted small businesses with massive fines if they choose to contribute to their employees’ health insurance costs. How massive? Fines could run as high as $36,500 a year, per employee. No, that’s not a typo.

The rule, which took effect July 1, says that employers that reimburse the cost of employee premiums or pay health costs directly, pre- or post-tax contribution, will be subject to $100 per employee per day fines, even if this is the only insurance support many can afford.

The Obama administration’s regulation writers at the Internal Revenue Service (IRS) developed the rule, but it doesn’t appear in the Affordable Care Act (ACA) itself. “It’s the biggest penalty no one is talking about,” says Kevin Kuhlman, policy director for the National Association of Independent Business (NAIB). The penalty is 18 times greater than President Barack Obama’s ACA employer-mandate penalty, and companies with 50 employees or fewer are not exempt.

“The penalty for compensating employees for healthcare-related expenses is enough to destroy most small businesses, says Kuhlman.” This contribution is an “easier and simpler route” to help employees pay premiums or finance direct payment for medical services. Most small employers do not have benefit specialists or departments to administer a costly group plan, he adds.

Rep. Charles Boustany (R-LA) has introduced legislation in the House (H.R. 2911), and Sen. Charles Grassley (R-IA) in the Senate (S.1697) to fix the problem. “If there’s an opportunity for a bipartisan improvement toward affordable healthcare, this has to be it,” says Kuhlman. “There’s no real justification for penalizing small businesses that do what the law’s strongest supporters claim to want, which is to help employees obtain coverage or pay medical bills.” 

Both bills await congressional action. Click here to learn more.