BACKGROUND: Before the passage of the 21st Century Cures Act, employers were not permitted to reimburse their employees for health insurance premiums under “stand-alone” health reimbursement arrangements after June 30, 2015. A company that does not offer group health insurance to its employees and only reimburses employees for health insurance premiums or medical expenses has a “stand-alone” health reimbursement arrangement.
WHAT’S NEW: The 21st Century Cures Act now permits “stand-alone” health reimbursement
arrangements starting January 1, 2017. Reimbursements are not taxable to the employee and the employer gets a tax deduction for the amounts reimbursed to the employee.
ALL of the following requirements must be met:
1. The employer has fewer than 50 employees
2. The employer does not provide a group health plan to ANY of its employees
3. All eligible employees are given the same terms within the arrangement. The employer cannot just offer this plan to some employees and not others.
However, the following employees can be excluded: employees under 25 years old, part-time or seasonal workers, employers covered in a collective bargaining unit, and certain nonresident aliens. In addition, different reimbursement amounts are permitted so long as the variances are due to the differences in premiums that exist because of age and number of family members covered.
4. The plan is funded solely by the employer
5. The plan reimburses health insurance premiums or medical expenses incurred by the employee or the employee’s family members (“family members” are defined by each HRA)
6. The maximum reimbursement allowed is $10,000, adjusted annually for cost of living increases (the maximum is limited to $4,950 if only the employee’s expenses are covered)
7. All eligible employees must have health insurance that meets the “minimum essential coverage” (any health insurance plan that meets the Affordable Care Act requirement for having health coverage). Reimbursements will be taxable to the employee if the employee does not have the required health insurance coverage.
1. The employer must report the total amount of permitted benefit on the employee’s W2.
2. At least 90 days prior to the start of the year—for 2017 only, employers have until March 13, 2017—employers must provide to all eligible employees a written notice that contain ALL of the following information:
a. A statement of the amount of the employee’s permitted benefit under the health reimbursement arrangement
b. A statement that if the employee applies for advance payment of premium tax credit in an insurance exchange, the employee must provide the exchange with the employee’s permitted benefit under the health reimbursement arrangement
c. A statement that the employee remains subject to the mandate to have health insurance that satisfies the “minimum essential coverage” each month and that if the employee does not have the required health insurance, the employee may have to pay the “individual mandate” penalty on his/her income tax return and the reimbursements may be taxable to the employee.
Contact LSL CPAs for more information.
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