Avoiding the $100 Per Day Penalty under the ACA
Employer Payment Plans are defined as reimbursements from an employer for an employee's substantiated premiums for non-employer sponsored medical insurance. The definition also includes payments made directly to the insurance company on behalf of the employee for an individual medical insurance policy. These Employer Payments Plans are in violation of the Affordable Care Act (ACA) unless the employer also provides a qualifying ACA medical plan along with the payment plan. The penalty for such a violation of the ACA could subject the employer to a $100 per day per employee penalty, or $36,500 per year per employee.
Furthermore, this penalty cannot be avoided by including the reimbursements in the employees' W-2s based on the Department of Labor Question and Answer (Q&A) on this topic. In another scenario, some employers offer an option for employees to receive an after-tax amount intended to be applied to heath care coverage, or the employers allow the employees to take the amount as compensation. Neither the Department of Revenue (DOR) nor the Internal Revenue Service (IRS) has given clear indication of whether this is in violation of the ACA.
Taxpayers, tax preparers, and to a great extent, even the law makers and the IRS, are still sorting out all of the implications of the individual mandate and the employer mandate within the ACA requirements, so there are still many unanswered questions in this area. If you believe you are impacted by the rules around Employer Payment Plans, please reach out to your tax adviser as soon as possible.
Don Farmer Federal Tax Newsletter #225, IRS Notice 2013-54