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Discussion:Health Insurance Reimbursement Post-ACA

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Discussion Forum Index --> Tax Questions --> Health Insurance Reimbursement Post-ACA


EatonCPA (talk|edits) said:

8 January 2014
I tried a yellow box search but I couldn't turn up a good recent discussion, so I figured I'd start one. Trying to wrap my head around the ACA and want to get the community's input on clarifying how these new rules affect how many of our small businesses handled health insurance. I think most of us know employers previously could reimburse employees for their individually purchased health insurance premiums and take a full deduction on the corporate return without the employee having to recognize the premiums as taxable compensation. Additionally, S-Corp shareholders previously would record *their* company-paid premiums in Boxes 1 and 16 of their W-2s and get a Page 1 deduction on the 1040, but not subject to FICA taxes. Now, these are the new rules as *I* have come to understand them - agree or disagree?

If a company reimburses anyone - employee, officer, shareholder - for health insurance, those reimbursements must all be considered taxable compensation to be included in Boxes 1, 3, 5, AND 16 and subject to all applicable income and FICA taxes. Company then takes a write-off.

I think I'm clear on that. I am so not clear on what happens on the 1040s for these people. Do S-Corp shareholders still get a Page 1 deduction? Does everyone get to deduct the premiums on Schedule A? What about contributions to an HSA, both for regular employees and S-Corp shareholders?

And do all of these new ways of reporting/handling matters apply only to insurance plans adopted/renewed after January 1, 2014? If someone is currently in month 8 of their 12 month annual policy, can they continue to get tax-free reimbursements until such time as they renew?

Chatter away ...

Ckenefick (talk|edits) said:

8 January 2014
If you're saying that the Company "reimburses" employees...on their own personal policies...policies that are not part of the employer's group policy...you're looking at a penalty of $100 per day for violating this Obamacare rule. Yes, $36,500 per year. that is my take on this provision.

However, I also believe that you can reimburse for 1 person, but no more than one.

Belle (talk|edits) said:

January 8, 2014
I agree with Chris. The class I attended on Monday confirmed that position, although the instructor "felt" that there might be future guidance on the situation for 2% shareholders. IMHO, that would require a revision in the ACA by Congress and isn't likely to happen soon.

Captcook (talk|edits) said:

8 January 2014
I'm in agreement as well. Although, Belle, haven't you noticed that the Executive Branch can modify the effect of any law through enforcement? I expect guidance without statutory support...again.

JAD (talk|edits) said:

8 January 2014
Company cannot reimburse the individual for the cost of his individual insurance without incurring a penalty even if the reimbursement is treated as wage income?

Ckenefick (talk|edits) said:

8 January 2014
I'm not sure if we're splitting hairs here, but I tend to think if the "reimbursement" is included as taxable compensation, then it would lose its character as a problematic health insurance reimbursement and instead represent taxable compensation. I believe this is Eaton's position and I "tend" to agree with it, but with some reservation. You just never know.

I'm not sure if there is enough of a connection for the Service to argue that it's still a (problematic) health insurance reimbursement, albeit a taxable one, that still violates the ACA. I think we need to remember here that we're diving into a non-tax law, that speaks to limitation of benefits, and we're trying to move it into the tax arena. For all we know, if we continue to call it a reimbursement, and if we base the reimbursement on a premium payment made by an employee on his or her personal policy, and we base it on documentation submitted by an employee that references an insurance policy...we just might be in trouble. In other words, IRS might not care that we taxed it - IRS may still argue that we've violated the limitation of benefits rule.

In my view, if we intend on line item-ing this out on the guy's pay-stub, we might not want to make any reference to "health insurance" or "medical expense reimbursement" as the case may be. Maybe we just call it "Additional Compensation" or "Monthly Bonus" or something along those lines. Ideally, it wouldn't even be a separate line item, but maybe just lumped in with regular compensation. Again, I may be splitting hairs here...but then again, maybe I'm not, in light of the fact that the ACA speaks to limitation of benefits and the ACA might not care if we, as the employer, specifically tax the thing.

JAD (talk|edits) said:

9 January 2014
Scary stuff. Where is the $100 per day fine for reimbursing? I am aware of a $100 per day fine for not notifying employees re exchanges if the business has at least 1 employee and $500k in revenue, but the govt said that it was not going to assess that fine.

Captcook (talk|edits) said:

9 January 2014
Jessica, that fine actually never existed. See the DOL's announcement on October 3.

Interesting points, Chris. I've advised a couple of clients to show the additional payments as "medical stipend" fully taxable on the W-2. I hadn't considered whether that would continue to be in violation of the non-tax provisions.

DebP (talk|edits) said:

9 January 2014
Ckenefick - where do you see that employees can reimburse for one person but not more than 1?

Ckenefick (talk|edits) said:

9 January 2014
A pretty good synopsis is here...and is consistent with all my research on this issue:

http://www.cliftonlarsonallen.com/Employee-Benefit-Plans/New-Restrictions-Employer-Provided-Medical-Expense-Reimbursement-Plans.aspx

...and, I believe if you trace things through the Code, you end up at Sec 4980D(b)(1).

JAD (talk|edits) said:

9 January 2014
Captcook, I did a quick look - the fine exists, but is not being assessed, per the sept notice.

CathysTaxes (talk|edits) said:

9 January 2014
Excellent discussion. This is similar to a client's problem. His employer is not renewing their health insurance (less than 50 people). Instead, each employee, who can provide proof of single coverage, will get an additional $300 per month and family coverage will get $900 per month. Last year, his W2 showed about $8,000 being deducted from his taxable wages for his portion of the health insurance.

So, it looks like not only will he pay income, social security, and medicare, and state tax on the $8,000, he now has additional taxable income of $10,800 ($900 * 12). He can itemize the cost of the insurance, but at 10% of adjustable gross income (his W2 taxable wages were $90,000, add $8000 and $10,800), he probably won't be able to deduct any of it.

JAD (talk|edits) said:

9 January 2014
Thanks for the link, Chris. That's a good summary. That $100 per day per person fine is ridiculous. The Code seems to include more and more absurd penalties that seem like onerous traps rather than penalties intended to encourage compliance.

The article does not address whether the Sec 105 plan is ACA compliant if there is no limit on the amount that may be reimbursed through the plan. A couple of benefits specialists who I work with both think that this is an option.

Captcook (talk|edits) said:

9 January 2014
Where did you find the cite for the penalty for not providing notice?

Taxalmancer (talk|edits) said:

January 9, 2014
Does the garden-variety Section 125 plan (POP) administered by payroll processing companies (ADP, PAYCHEX), violate the rule and trigger the $100/day per employee?

Ckenefick (talk|edits) said:

9 January 2014
Are we talking about a group plan, maintained by the employer, or individual personal policies?

Taxalmancer (talk|edits) said:

January 9, 2014
Group plan maintained by employer. Employer is billed by insurance company(s) and employee's portion of the health insurance premium reduces their taxable earnings.

WIBadgerCPA (talk|edits) said:

9 January 2014
Publication 15-b still has the exception for FICA tax for 2% shareholders.

JAD (talk|edits) said:

9 January 2014
Where did you find the cite for the penalty for not providing notice?

I didn't. Just lots of discussion in the news etc. I thought that that penalty was per law outside of the IRC, and I didn't look for it. I assumed - perhaps naively - that businesses would not have been threatened with that penalty if it didn't exist in the USC somewhere.

Ckenefick (talk|edits) said:

9 January 2014
Publication 15-b still has the exception for FICA tax for 2% shareholders.

I'm sure it does, seeing that there's a possiblity that the S-corp might maintain a group plan, of which the 2%-Shareholders are participants. Might also be the case where the reimbursement to the 2%-shareholder isn't prohibited, because a group plan is not required (i.e. the only employee is the shareholder and perhaps the shareholder's spouse).

I think what Eaton is getting at is the situation where S-corp reimburses on the personal policies of the shareholders. If this is not permitted any longer (except in the case of 1-employee S-corp's), I don't see how the reimbursement would escape FICA. In other words, the reimbursement isn't taxable as a fringe, it's taxable because it is regular compensation. In which case, no deduction on the 1040 either.

This law, or at the least the IRS' interpretation of it, is a real piece of crap. Might even be struck down if challenged, but whose willing to risk that, given a $36,500 penalty...for each participant. I would say the deck is stacked, quite unfairly, in favor of the government here. If there were no penalty, but only the possibility of paying add'l taxes on the add'l income and lost deduction...I'd be telling people to ignore the Notice.

Taxalmancer (talk|edits) said:

January 9, 2014
Chris,

Do you have any thoughts about whether a Section 125 POP plan where the health insurance premiums maintained by the employer triggers the $100/day penalty? By the way, this would be for small employers below the 50-employee threshold.

Ckenefick (talk|edits) said:

9 January 2014
You'd be okay if we're talking about a group plan...but if, for example, we're talking about a 125 Plan whereby employee can pre-tax some of the earnings towards coverage on an individual personal policy, we'd have a problem...just like we have with a more-than-1-employee S-corp reimbursing personal premiums for the shareholders.

More good info is here:

http://www.groom.com/media/publication/1304_Individual_Health_Policies.pdf

Back to Eaton's question and to WI's last post...In thinking more about the S-corp situation, I tend to think we'd have a 162(l) deduction if the insurance is "paid" by the shareholder/employee, after-tax, via an after-tax payroll deduction with respect to personal policy premiums.

Wiles (talk|edits) said:

9 January 2014
Wait! Wait! I thought the reimbursement was only prohibited if the individual plan was purchased via the Exchange. All other reimbursement for individual plans are still allowable.

I really wish they would have phased this law in over a 4-year period or something so that our education providers could have got something out to us about all these changes.

Captcook (talk|edits) said:

9 January 2014
Jessica, here's [1]a discussion on the topic with a couple of links.

In August, I did some research on any potential penalties relating to this notice and found none. There was a lot of press on it, but the DOL (relatively) quickly came out and clarified there is no penalty for noncompliance.

Ckenefick (talk|edits) said:

9 January 2014
All other reimbursement for individual plans are still allowable.

Don't think so...unfortunately.

Ckenefick (talk|edits) said:

9 January 2014
I really wish they would have phased this law in over a 4-year period or something so that our education providers could have got something out to us about all these changes.

With respect to the reimbursement issue, I tend to think Congress didn't actually intend for it to work as the way the IRS is interpreting it. In other words, an unintended consequence, much like other aspects of the ACA.

Seriously, isn't the whole point of ACA for people to have health insurance? I really don't see how any type of premium reimbursement arrangement - on an existing policy - violates this notion.

DAJCPA (talk|edits) said:

9 January 2014
So, what if you have a husband owned S-Corp which employs his wife. S-Corp reimburses husband's Medicare premiums and also reimburses the wife's separate policy. No way for the S-Corp to get a group plan, the separate policies are the "group plan". Can the S-Corp only reimburse one of the two policies now?

Ckenefick (talk|edits) said:

9 January 2014
No, I tend to think the S-corp can reimburse both without any problems.

JAD (talk|edits) said:

9 January 2014
Captcook, thanks, I stand corrected. Unbelievable that there was nothing in the law that was the basis for all of that hysteria.

Captcook (talk|edits) said:

9 January 2014
Indeed, Jessica.

Ckenefick (talk|edits) said:

9 January 2014
http://www.bashaw-atherton.com/acapenalty.html

I didn't check the list, but I wouldn't jump to the conclusion that it was just hysteria.

Harry Boscoe (talk|edits) said:

9 January 2014
I like the use of the term "Post-ACA" in the title of this discussion. And I'm a cynic.

It's clearly anticipating a time *after* the ACA, like when it's been repealed, right? Right?

EADave (talk|edits) said:

10 January 2014
This legislation has been rushed and thrown together with no one smart enough to realize the unintended results. Typical handy work of our Government. I really think this mandate should at least be postponed another year. The last seminar I attended was filled with 65+ year old preparers who all had the same response to this madness, "I think it's time to retire!!"

I think I have this right, people are signing up and applying for the subsidized plans by estimating their 2014 MAGI when most people don't even know their 2013 MAGI yet. And, if you understated your MAGI on the application then you have overstated the eligibility of the subsidy. You will be one of the lucky ones that must repay this subsidy on your 2014 tax return; in 2015.

This is the biggest cluster. Imagine this nightmare scenario: Taxpayer that qualifies for the EIC by claiming certain deductions (Section 179/etc) on their Schedule C; the taxpayer also qualifies for subsidized premiums due to the low level of income. All is good until the taxpayer receives an IDR for an audit on the same tax year 18 months later. Taxpayer kept poor records or maybe doesn't respond to the audit letter. IRS disallows expenses, income increases, EIC is wiped out AND the taxpayer must repay the subsidy he didn't qualify for.

This new law may be a boon for Collection Representation, a few years down the road anyway.

Captcook (talk|edits) said:

10 January 2014
Chris, it is not on the list. This link [2] has a pretty good summary of the issue.

Ckenefick (talk|edits) said:

10 January 2014
http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/Exchange-marketplace-notice-penalty.aspx

Here's another link, which is a link inside your last link...I'm not all that familiar with the nuances here, and didn't read hte list, but it sounds like it's saying the ACA, unless otherwise specified in a specific ACA provision, carries an "in general" $100/day penalty. I don't really know what this means or where this "in general" penalty provision specifically resides, statutorily, but I guess the interpretation was that any single violation of even the smallest provision (including the notice provision, which went into the Labor Code and not the Tax Code) invokes the penalty. But then in the Q&A, they go on to say, "Just kidding." Anyway, water under the bridge I suppose. I guess the real question is, "Where is this 'in general' $100/day penalty...I suppose it's the part of the ACA that went into the Labor Code, but I could be wrong.

DebP (talk|edits) said:

12 January 2014
Back to the 1 person reimbursement since I needed a chance to look a few things up:

1. Employer 1 is 100% owned S-Corp, but she has insurance through her husband's work. She just hired first employee last week and plans to pay his health insurance directly. That is OK for penalty purposes, but once she hires employee #2, then she either has to stop reimbursing the insurance or get a group health plan through S-Corp - correct? And no matter what, the reimbursement is taxable for income and FICA purposes. Correct?

2. Employer 2 is husband-wife S-Corp. S-Corp pays health insurance directly, and gets added to W-2. No penalty, but now subject to FICA vs. prior year. Correct? If they hire any other employee, then they can't reimburse or pay insurance directly, but they could just give a higher pay. And husband-wife still have get to deduct premiums above the line - that doesn't change to address EatonCPA's original question.

3. 100% owned S-Corp with several employees and group plan. S-Corp pays 100% owner insurance, 50% of one other individual, and two other individuals have coverage from other places. Only NEW issue here is FICA add-back I believe. What about any HSA payments in this circumstance? FICA as well?

Good stuff.

DebP (talk|edits) said:

13 January 2014
Any takers on item #1 from above? That's the one that is my most time-pressing one. Thanks.

1. Employer 1 is 100% owned S-Corp, but she has insurance through her husband's work. She just hired first employee last week and plans to pay his health insurance directly. That is OK for penalty purposes, but once she hires employee #2, then she either has to stop reimbursing the insurance or get a group health plan through S-Corp - correct? And no matter what, the reimbursement is taxable for income and FICA purposes. Correct?

Ckenefick (talk|edits) said:

13 January 2014
I think you have a problem. If the one employee was the 100% shareholder, I don't think there'd be any problems and you could reimburse that employee's/100% shareholder's premiums since the owner is excepted from the rules in such a case. But as things stand, you have a non-owner employee, which seems to me, to be problematic.

EatonCPA (talk|edits) said:

13 January 2014
----

DebP, based on what Chris has posted, with only one employee, the company can still reimburse the premiums without having to include it in compensation but once you have more than one employee, the reimbursements must be included in compensation and fully taxed UNLESS a group plan through the company is established. *edited* Well, given Chris' response to your post, perhaps not.

On number two, also based on Chris' posts, the reimbursements for the H + W are NOT subject to payroll taxes as long as they are the only employees of the company. As long as the pay is going through the old Box 1/Box 16 reporting rules, there is an above-the-line deduction but once the premiums go into compensation, the deduction falls back to Schedule A.

Number 3 - honestly not sure about that situation ... discrimination issues maybe? I'm still waiting on clarification from someone on handling the HSA contributions. I'd presume it goes about like everything else - one employee, keep it in Box 1 for 2%, otherwise Box 12 code W?

Ugh ... this mess is almost enough to make payroll not even worth it anymore as a service to offer.

Terry Oraha (talk|edits) said:

13 January 2014
If anyone is interested I just saw this article in the Tax Advisor.

PPACA Guidance Clarifies Rules for HRAs, Health FSAs, and Other Accountable Plans TAX CLINIC by Catherine Creech, J.D., and Helen Morrison, J.D., Washington, D.C. Published January 01, 2014 Editor: Michael Dell, CPA [3]

Ckenefick (talk|edits) said:

13 January 2014
*edited* Well, given Chris' response to your post, perhaps not.

I'm not 100% sure about this. I think we're in agreement that when the "one employee" is the sole-shareholder who has his or her personal premiums reimbursed, we're okay. I believe this is because such a situation falls outside of the group rules...and I think these group rules are in the DOL stuff, not in the tax code. This is similar to the ERISA rules we have for, say, a 100%-owned S-corp with no rank-and-file employees. In this case, if the S-corp sets up a 401k and the only participant is the sole shareholder (and/or his spouse), this Plan falls outside of ERISA. So, I think it's the same type of rule at play here with the welfare benefits. The real question is: Is it based on participation or just based on a head count?

Take my 401k example above. Let's say sole shareholder takes $0 W2 pay, but the rank-and-file employee does. As such, only the rank-and-file employee has a 401k account balance. It would seem inequitable, to the rank-and-file employee, that the Plan would fall outside of ERISA in such a case, even though it only has one participant.

Where's Marty?

Ckenefick (talk|edits) said:

13 January 2014
If anyone is interested I just saw this article in the Tax Advisor.

I think we are way past that article...I don't think the authors have come close to getting into some of the real world issues we have...

EatonCPA (talk|edits) said:

13 January 2014
Chris you bring up a good point and now that I look at the whole situation again, technically in Deb's #1, she has *two* employees here (presuming the S/H is reporting reasonable comp on a W-2), with only one participating in health insurance. More than one employee = insurance premiums are taxable compensation unless provided via a group plan, at least as I'm understanding all the rules.

Ckenefick (talk|edits) said:

13 January 2014
Exactly, but with one qualification: I don't think it matters if the sole shareholder takes as W2 compensation or not. I think no matter how we slice it, we have 2 common law employees. Does this mean we have violated the rule? Or, have we not violated the rule since we have only one *participant?*

Terry Oraha (talk|edits) said:

13 January 2014
If anyone is interested I just saw this article in the Tax Advisor.

I think we are way past that article...I don't think the authors have come close to getting into some of the real world issues we have...

I figured as much. Sounds like when I get a second I'm going to have to actually read this thread!!

Ckenefick (talk|edits) said:

13 January 2014
Mary's mother has four children: April, May, June and …?

AKCCPA (talk|edits) said:

January 13, 2014
Poor Mary.

Terry Oraha (talk|edits) said:

13 January 2014
Dude Chris that is a good one! My nephew is going to like it!

Ckenefick (talk|edits) said:

13 January 2014
Good work AKC...you have my permission to take the rest of the day off...

AKCCPA (talk|edits) said:

January 13, 2014
I need to spend the week figuring out what is going on with all this ACA stuff to be able to advise my clients it seems. It didn't help that Tax Almanac was down for so long.

DebP (talk|edits) said:

13 January 2014
Well just as an FYI - my particular S-Corp owner IS taking a salary, but I think we are trying to figure out these rules in general. So, I have two employees, and one is the 100% S-Corp owner NOT getting medical and the other is an brand new employee who IS getting medical. So, to convince my client that the employee health insurance needs to be taxed for income tax and FICA purposes, I need to tell her about the $100 per day penalty. The employee will not be happy, and an trying to find out some exact rule. I have a webinar on Friday, so I might be able to ask a question then. Ckenefick - I don't know the answer to the one "participant" question, but it is a very good point.

Ckenefick (talk|edits) said:

13 January 2014
I don't think it matters that the S-corp shareholder is or is not taking W2 pay. The issue here is that we have an employee head count of 2, but only 1 "plan participant," who is not the S-corp owner.

DebP (talk|edits) said:

13 January 2014
And so the answer is - ummm not sure. That sucks. I hate this. I am more nervous about the penalty than anything else.....

Thanks for the discussions!

Ckenefick (talk|edits) said:

13 January 2014
http://www.law.cornell.edu/cfr/text/29/2510.3-3

Here's the ERISA reg...

Again, I tend to think your Situation #1 is problematic. If I can summarize: If a Plan only covers the owner (and the owner's spouse), the Plan is not a Plan. The Plan is deemed to have no employees, so it fails as an Employee Plan. The minute we add a rank-and-file employee, we now have a valid Employee Plan. And my take is that if we have a valid Employee Plan, we need to go the Group route on the insurance. And if we don't go the group route, the personal premiums that are reimbursed are taxable to the rank-and-file employee. From Employer's standpoint, not much of a difference...Employer still gets the deduction. Of course, employer has added employment tax costs. In addition, maybe added retirement benefit costs if retirement plan contribution is based on wages paid.

I tend to think we haven't heard the last on this issue. Once your client's employee realizes that he or she will have to pay tax on this benefit, which has heretofore been tax free, employee will be pissed. And so will every other employee across the Land that is adversely affected by this stupid-ass new rule.

I'm just giving my opinion here. Others can be free to agree or disagree. Marty is the in-house expert on this stuff...

DebP (talk|edits) said:

13 January 2014
So let's get Marty on board.. how do we do that? :).

Yes - pissed is the word that comes to mind as well. I am going to delve a lot more into this - it's no quick - or even painfully slow - find.

Ckenefick (talk|edits) said:

13 January 2014
I tend to think we're looking in the right place...

Fsteincpa (talk|edits) said:

13 January 2014
In the above scenarios, what kind of salary are we talking about for the employees?

It is my understanding, and I am often wrong, but it is my understanding that if employees have health insurance through an employer, then they are not eligible for any subsidization. This becomes an issue for smaller corps where they may not be contributing much towards the employees cost, they are simply offering insurance.

In some cases it might make sense to eliminate the group health insurance plan and allow the employees to go through the exchange.

In addition, I believe that if the employers plan is not chosen through the exchange that the associated credit for paying 50% or more of the premium is not allowed.

The certified navigators may know the plans but I am wondering if they understand all the consequences.

Captcook (talk|edits) said:

13 January 2014
They don't. Even here in WA (a "pace car" state apparently), there is some serious confusion about who qualifies and when they can begin coverage.

I serve on the finance committee of a local nonprofit. We explored a group plan, but found it would jeopardize coverage for three low income employees. It would also increase our costs from about $4K a year to $19K a year. One of the employees in management is now pissed because he, essentially, received a pay decrease of $1,300 annually.

Ckenefick (talk|edits) said:

13 January 2014
It is my understanding, and I am often wrong, but it is my understanding that if employees have health insurance through an employer, then they are not eligible for any subsidization

Not sure what you mean by "through an employer." Didn't we have a post wherein 100% S-corp owner DID go to the exchange and DID get a personal policy...and DID get a subsidy...and now the S-corp will reimburse the entire cost of the policy?

Didn't we conclude that this was totally allowable, based on a strict reading of Sec 5000A.

JAD (talk|edits) said:

13 January 2014
It's not just the taxpayers who are royally pissed. How about us professionals? I do not want to deal with this. Why are we several years into this law and we still don't know what the law is? I've spoken to several benefit specialists who have done a lot of work to learn the law, and there's a lot that they don't know. This goes way beyond the normal bellyaching about the need for tax reform.

Fsteincpa (talk|edits) said:

13 January 2014
Chris, I am talking of Corps with employees. A corp with 4 employees let's say.

Corp has group insurance plan, employees are not eligible for subsidy then, correct?

Ckenefick (talk|edits) said:

13 January 2014
I don't know. Who are the 4 employees? Husband, wife, and 2 dependents?

JackTraffic (talk|edits) said:

13 January 2014
Eaton said:

>... is going through the old Box 1/Box 16 reporting rules,

Minor point of clarification... Eaton (I think) means Box 14 here... not Box 16...

Either that, or I've been doing my W-2s wrong.

BTW, my take on all this (much helped by this discussion) is practically speaking that $100 a day penalty means that small S corporations lose the self-employed health insurance deduction, FICA/Medicare tax savings, when hiring that second employee... or at least they do if the new employee doesn't get onto the same plan as the shareholder-employee.

Fsteincpa (talk|edits) said:

13 January 2014
All non-related.

I understand the discussion as it relates to Corps with only family, but I have small businesses and they don't need to be a corp, Schedule C businesses with employees may have issues.

If health insurance is offered through a company an individual works for, then they are not eligible for a subsidy.

EatonCPA (talk|edits) said:

14 January 2014
Eaton said:

>... is going through the old Box 1/Box 16 reporting rules,

Minor point of clarification... Eaton (I think) means Box 14 here... not Box 16...

Nope, I meant Box 16 - State Taxable Wages - although frequently there is a notation in Box 14.

Fred, you are correct on your understanding. The subsidies are to help individuals purchase plans on the exchange - one would presume having a group plan at work would eliminate that need. That said, if only the TP is covered under a plan at work and still has to go to the exchange to get a plan to cover a spouse and/or dependents, couldn't they then qualify for a subsidy on *that* plan?

Ahhh, good ol' ACA - the gift that keeps on giving.

JackTraffic (talk|edits) said:

14 January 2014
Ah, okay. I'm in state without state income tax. And, yup, I meant thought you meant the notation...

Umk395 (talk|edits) said:

14 January 2014
Just so I'm clear, I have a client who is an S Corp. The employees consist of the 100% owner/shareholder + 4 employees. The company has been reimbursing all employees for mecial expenses they incur throughout the year. At the end of each year, we add up all of the medical expense reimbursements and add those costs to each employee's respective W-2 -- subject to all Fed, FICA taxes. Is this type of arrangement not allowed any longer???

Fsteincpa (talk|edits) said:

14 January 2014
Sara, thank you, coincidentally, as I was reading this, an exchange navigator sitting with my client called with some questions. I was able to get an answer from her.

9.5% of pay is the affordable benchmark. So, the company can offer a plan, and if the employee cost of the plan is less than 9.5% then they can get no subsidy. If the plan cost to the employee is more than that, then it's deemed not affordable and the employee is eligible for a subsidy.

What she also said is that if a company offers a and pays enough for individual coverage that the individual plan is deemed affordable based on the 9.5% threshold and nothing towards family, it may make sense to not offer the family plan as the subsidy becomes lost for the other members.

I have a formal appointment with her next Wednesday to learn more and see how she can assist my clients.

Umk395 (talk|edits) said:

14 January 2014
My thought is that if the employees are having those reimbursements fully taxed, then their type of arrangement does not result in a violation of the ACA.

Captcook (talk|edits) said:

14 January 2014
I agree, Umk. At that point, the company does not have a medical plan, but has increased their deduction for employee's wages.

Fred, the other dynamic in your scenario is that when it may make sense to not offer the family plan this treatment must be consistent throughout the company. If the owner wants to cover his dependents, then he must offer the same to the rest of his employees. He is not required to contribute anything toward the premiums for the rest of the family, just the portion covering the employee to be deemed affordable.

Fsteincpa (talk|edits) said:

14 January 2014
Capt, yes, there can be no discrimination. What the navigator told me on the phone was that something to consider.

If the group plan offered by an employer is deemed affordable, then the employee is not allowed a subsidy. So, if the employer offers an individual plan that is deemed affordable and also offers family coverage, then by extension, the family is deemed to be offered an affordable plan and then would not qualify for a subsidy.

She indicated that in those situations, it may help the employees out by completely eliminating family coverage. By only providing individual coverage, then the rest of the family are still eligible for subsidies.

PVVCPA (talk|edits) said:

January 15, 2014
These folks seem to believe that an employer can reimburse an employee's individual policy with a properly structured Sec 105 plan:

http://www.zanebenefits.com/blog/can-employers-reimburse-employees-individual-health-insurance-in-2014

Can Nancy Pelosi now please tell us what is in this bill?

JAD (talk|edits) said:

15 January 2014
Paul, we haven't seen you in ages. Where have you been?

JAD (talk|edits) said:

15 January 2014
I think that Notice 2013-54 is pretty clear that the HRA cannot reimburse the individual policy premiums. 105 may not have changed, but other side of the transaction - the business's side - has changed, and there are substantial penalties. Your article doesn't seem to address those penalties.

JAD (talk|edits) said:

15 January 2014
I think that Q&A 1 shoots it down pretty clearly.

PVVCPA (talk|edits) said:

January 15, 2014
Hi Jessica, I have been hanging around. Just not as much posting as before. It seems like this restriction would be big news for our industry. I can't understand why my research providers and the CE classes I take have not even discussed this.

JAD (talk|edits) said:

15 January 2014
The whole thing is such a disaster. I was on a webcast today with an excellent instructor. It's the first time I've taken a class on ACA where the speaker clearly knew what he was talking about. I'm in contact now with his office regarding a different issue on a client's 105 plan. The lady I spoke with was upfront with me about what they know and what they are still trying to figure out. Even the specialists are challenged. And I think that you are right - this restriction is big news, but it's only one of many issues, which is why it might not be getting that much press. I think that right now people are more focused on health insurance coverage, not 105 plans.

And I think that the article that you linked to is misleading at best. Those guys need to read the notice.

Captcook (talk|edits) said:

15 January 2014
I spoke with an insurance professional last week who has some relationships with companies selling §105 plans with a portability option. In my opinion, these plans are dead. They were shaky to begin with, but the companies are adamant their lawyers have it figured out. I think they are just riding it out and will bail as soon as it is really challenged.

I love how they've really punted on most of the questions posted in the comments section of the link posted above. The main responder finally just said: As an alternative, you could treat the reimbursement as taxable. No sh*t, Sherlock.

Ckenefick (talk|edits) said:

15 January 2014
I love how they've really punted on most of the questions posted in the comments section of the link posted above.

I noticed that too. The Insurance Industry...always coming up with tax shit that never works.

Smokeytax (talk|edits) said:

17 January 2014
So, where do we stand regarding the one owner S corporation? Can the S corp reimburse for the insurance bought by the sole owner/employee on the exchange with subsidy?

Ckenefick (talk|edits) said:

17 January 2014
I say yes.

EatonCPA (talk|edits) said:

17 January 2014
Chris, to clarify the wrinkle Smokey added .. in that there will be a subsidy involved ... id it presumed that the only portion then the S-Corp pays are the premiums after the subsidy has been applied to the overall account and therefore there is no double-dip? For example, if the entire policy cost for a year is $10,000 and the TP qualifies for a $3,000 subsidy, the S-Corp will then pay $7,000, resulting in a $7,000 Page 1 deduction and we're square. Because aren't the subsidies submitted directly to the insurer and not the TP?

This year, instead of a "Dear Client - let me count the ways you are driving me crazy" thread, it's going to be all "Dear Congressperson/President Obama - let me count the ways I hate this healthcare law."

Ckenefick (talk|edits) said:

17 January 2014
I guess that's right. What a f'ing mess.

Wiles (talk|edits) said:

17 January 2014
God help us if Chris can't figure this out.

Ckenefick (talk|edits) said:

17 January 2014
I'm not really sure how the subsidy operates. If it is inextricably tied to the premiums, then I'm thinking one's premiums are Gross Premiums less subsidy. That is, subsidy is like a reimbursement. But then, what if some subsidy has to be paid back? What if taxpayer gets more?

Captcook (talk|edits) said:

17 January 2014
But then, what if some subsidy has to be paid back? What if taxpayer gets more?

Exactly, if the exchange is involved, it is my understanding that an employer plan cannot be involved. That is, essentially, the premiums can't be paid pre-FICA tax. When premium reimbursements are paid by an s-corp on behalf of the shareholder/employee, these are not subject to FICA, which is not allowed.

Ckenefick (talk|edits) said:

17 January 2014
Exactly, if the exchange is involved, it is my understanding that an employer plan cannot be involved

That's the general rule. But an "employer plan" is not quite the focal language in Sec 5000A(f)(2):

2) Eligible employer-sponsored plan. The term “eligible employer-sponsored plan” means, with respect to any employee, a group health plan or group health insurance coverage offered by an employer to the employee which is— (A) a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act), or (B) any other plan or coverage offered in the small or large group market within a State.

...it refers to "group" stuff, which we explored in that other post:

http://www.taxalmanac.org/index.php/Discussion:2%25_Shareholder,_qualify_for_Subsidy%3F

And, I do think we end up at Sec 5000A(f)(2) once we navigate our way from the Subsidy Section/Regs.

Captcook (talk|edits) said:

17 January 2014
I see your point, Chris, and I don't necessarily disagree that the authority leans the direction you illustrate.

However, according to the Federal Tax Coordinator, the reimbursement arrangment is considered to be an eligible employer sponsored plan. This disqualifies the individual from eligibility from subsidies at the exchange. I agree the language in the statute references group plans, but I tend to agree with FTC that the existence of an employer plan nixes subsidy eligibility. Hopefully, the IRS will clarify this point soon.

Ckenefick (talk|edits) said:

17 January 2014
However, according to the Federal Tax Coordinator, the reimbursement arrangment is considered to be an eligible employer sponsored plan.

What paragraph?

Captcook (talk|edits) said:

17 January 2014
A-4246.3 The first paragraph after the "observations".

It includes an employer reimbursement plan as an "eligible employer-sponsored plan". Eligibility for such a plan precludes eligibility for a premium credit.

Ckenefick (talk|edits) said:

17 January 2014
I see it, but not so sure I follow it. Para A-4246.3 ends up where I do in the analysis - Section 5000A(f)(2), which again speaks to group coverage.

UNC-CPA (talk|edits) said:

18 January 2014
So how do part time employees fit into a owner insurance reimbursement? For instance, 100% owner/employee with 4 part time employees (less than 20 hours per week). Can company reimburse owner for self employed individual insurance policy? Company does not reimburse other employees or offer a group plan.

EatonCPA (talk|edits) said:

20 January 2014
UNC - part time fit same as full-time. The code with respect to this area does not distinguish between the two. IE, there is no reference to calculating the full time equivalents like you would to say, determine if the employer meets the 50 employee threshold requiring them to offer insurance. Having one other non-spouse/dependent family member on payroll, even at 2 hours per week, means the tax-free reimbursements are out the window for anyone and everyone.

Captcook (talk|edits) said:

20 January 2014
I'm not so sure I agree, Eaton.

The deal with a 100% shareholder/employee reimbursing himself for his individual plan is that you can't have a group plan with one person. If you extend benefits to "all full-time employees", but only have one full-time employee, wouldn't the same dynamics apply? On what authority are you basing your conclusion?

EatonCPA (talk|edits) said:

20 January 2014
That has been the primary topic of this entire discussion. I'll refer you back to the Clifton Larsen Allen link Chris posted way back in the beginning. As that article describes it, the arrangement you propose would violate the nondiscrimination rules, making it ineligible for Section 106 treatment anyway. Section 106 only still works when there is one employee - with no distinction being offered of full-time or part-time status. I'm certainly open to other suggestions/interpretations with reference but everything I've seen in research says this is a no-go unless you fly solo.

Captcook (talk|edits) said:

20 January 2014
From the article: But Section 105 plans must meet nondiscrimination rules, so these one-employee plans are only practical where there are no other regular employees in the family business. Is this the section to which you refer?

I think parsing of the phrase "no other regular employees" is where I think we differ. I don't think part-time employees would count. Even in small group plans, you don't have to extend benefits to part-time employees. The article doesn't make any reference to part-time/full-time employees.

MWPXYZ (talk|edits) said:

20 January 2014
If I understand what the above comments refer to regarding discrimination; doesn't Notice 2011-1 still stand. I believe the "news" this weekend reiterated that the nondiscrimination rules were not applicable. Notice 2011-1 also refers to the $100 a day penalty applicable to the noncompliance with the nondiscrimination rules under 4980D, which may be a different 4980D penalty than is being discussed above (4980D(b)(1)).

Maybe the mandatory inclusion of mental illness coverage in health insurance policies may not be such a bad thing.

BTW, anyone have any luck using a Havaheart with weasels, or a rat trap.

JAD (talk|edits) said:

21 January 2014
I think that the 105 plan still works for the shareholder who is the only full-time employee, but it has to be integrated with an ACA compliant group health insurance plan. This is based upon lots of reading and a recent discussion with an ERISA atty.

Then the question is whether the 105 plan can reimburse for the individual health insurance policy. At that point, I think that it does not work. The notice effectively says that the 105 plan can't integrate with the non-group health insurance. This is pretty clear in Q&A 1.

The million dollar question (literally, by the time you accumulate that $100 per day penalty for a few years) is whether we can take the position that Notice 2013-54 does not apply to the HRA with only one qualifying employee according to "D. Affordable Care Act Guidance", which says,

...the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year...

How lucky do you feel?

JAD (talk|edits) said:

21 January 2014
What I don't understand, and what I wish someone would explain to me, is why the medical reimbursement plan can't reimburse individual insurance premiums. What was the policy reason for that decision? The only thing that I can think of is that the decision-makers ultimately want to force everybody onto the exchange. Can anyone provide a less nefarious reason for this rule?

Ckenefick (talk|edits) said:

21 January 2014
See this link as to the IRS' rationale...and also see my first link way above:

http://www.lexology.com/library/detail.aspx?g=9e7697dd-b2f9-4c94-9cfb-e3cb9db59a7f

And before, Captain said this:

A-4246.3 The first paragraph after the "observations". It includes an employer reimbursement plan as an "eligible employer-sponsored plan". Eligibility for such a plan precludes eligibility for a premium credit.

I think I may be seeing what RIA is saying here, and I think it goes back to the reasoning associated with this whole personal premium reimbursement thing...I might be wrong, but the article I just linked indicated that it is the IRS' belief that the employer arrangement in such a case constitutes a group plan, but simply, a non-compliant group plan (because it violates the limitation of benefits). But, I'm not sure...5000A clearly uses the word "group" in a few places, presumably meaning "compliant group" not "non-compliant group."

JAD (talk|edits) said:

21 January 2014
I still don't get it. The article's explanation seems to be that there is an assumption that the individual's health insurance policy would have limits on benefits that are not allowed under the ACA. This is a big assumption, especially if insurance is purchased on the exchange. In that case, the insurance would meet the requirements of the law by definition.

I also don't understand the first point in the article of what must happen for an HRA to be integrated with an ACA compliant group health plan. #1 says that the employer must offer a group health plan other than the HRA that does not consist solely of excepted benefits. I don't believe that I've read this, and it's not what I've learned. My understanding is that the HRA may be integrated with an ACA compliant group health plan, even a plan that is not provided by the employer. I have not seen anything else that says that the employer must offer a group health plan.

Ckenefick (talk|edits) said:

21 January 2014
I think you're misunderstanding a few things. See Q&A #1 in the Notice:

Question 1: The HRA FAQs provide that an employer-sponsored HRA cannot be integrated with individual market coverage, and, therefore, an HRA used to purchase coverage on the individual market will fail to comply with the annual dollar limit prohibition. May other types of group health plans used to purchase coverage on the individual market be integrated with that individual market coverage for purposes of the annual dollar limit prohibition?

Answer 1: No. A group health plan, including an HRA, used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the annual dollar limit prohibition.

For example, a group health plan, such as an employer payment plan, that reimburses employees for an employee’s substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.

JAD (talk|edits) said:

21 January 2014
I think I understand the law ("think" being the operative word here), but I don't understand the reasoning. A medical reimbursement plan may be integrated with group health coverage provided by another source - another employer or a spouse's employer, for example. This does not cause a deemed failure to comply with the annual dollar prohibition.

If the medical reimbursement plan is integrated with an individual policy that is ACA compliant, then what is the difference? Why a deemed failure in the latter case but not in the former case?

Ckenefick (talk|edits) said:

21 January 2014
If the medical reimbursement plan is integrated with an individual policy that is ACA compliant, then what is the difference?

There is no difference, that's why we're all pissed off about it. And, the deck is stacked against us. It's hard to argue with the government here, not because their position is arbitrary and flies in the face of the over-riding objective of the ACA, but because when you bring this mess up to a client, client is not interested in dealing with a $100.00 per day penalty, per participant, no matter who is right and who is wrong. Now, if there was no penalty, I'd be first in line to challenge it.

JAD (talk|edits) said:

21 January 2014
So then we're back to my question regarding the reason for the rule. Could it be to simply force as many people as possible onto the exchanges since it puts the individual policies at such a disadvantage.

Ckenefick (talk|edits) said:

21 January 2014
I myself tend to think it was unintended consequence.

DAJCPA (talk|edits) said:

21 January 2014
Could it be to simply force as many people as possible onto the exchanges since it puts the individual policies at such a disadvantage.

The exchange is just another place to buy individual policies. From what I see, the insurance there is nothing really special other than you know they meet minimum requirements and can get the premium assistance credit. Thus I'm not sure how the above would force people onto the exchange. You can still get qualified individual policies outside the exchange. Do you mean force small businesses to go get insurance on the small business exchanges or SHOPs? The reason I say this is because, if anything, I think the IRS's position pushes the employer to think about just getting a group policy and covering all employees rather than allowing employes to choose whether or not get coverage and only having to reimburse those employees that actually make the effort and go out and get coverage. This would be a way to get a few more people covered since the employer does the leg work and then those other employees that never took the time or effort to get coverage would say, sure, sign me up.

This brings up more questions/points, in my mind. The employees that never get insurance are still, technically in the HRA, right? Then, if HRA only reimburses health insurance premiums, one has just placed an annual limit of zero for the HRA for those employees that never get an individual policy. Maybe all employees go get coverage, which is great; but that may not always be the case. The IRS may be trying to eliminate this problem and saying "employers, you need to just get a group plan to make it easy for everyone.....well, except for you, the employer, of course".

Wiles (talk|edits) said:

21 January 2014
Q&A #1: However the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.

Allow me to paraphrase: However the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) we say so, and (2) our answer is 'No'.

Ckenefick (talk|edits) said:

21 January 2014
We can't disagree with you, Wiles. Remember this is just a Notice.

Fsteincpa (talk|edits) said:

23 January 2014
Bump

JAD (talk|edits) said:

3 February 2014
The million dollar question (literally, by the time you accumulate that $100 per day penalty for a few years) is whether we can take the position that Notice 2013-54 does not apply to the HRA with only one qualifying employee according to "D. Affordable Care Act Guidance", which says, ...the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year... How lucky do you feel?

Today, I spoke with an attorney who does a lot of work in this area. Her thought is that the 9800s don't apply to a plan that covers less than 2 current employees. This is consistent with a plan reading of 9831(a)(2).

Ckenefick (talk|edits) said:

4 February 2014
Is your point that when counting numbers, we count "participants" and not employees?

For example: H&W own and S-corp that has 10 rank-and-file employees. S-corp reimburses personal premiums for H&W, but does not reimburse anything for the rank-and-file employees and S-corp does not maintain a group health plan. Are we okay in this situation b/c we have just one "participant?"

Another example: H owns an S-corp which has one rank-and-file employee. H is covered under his spouse's plan through his spouse's employment. As such, S-corp pays $0 health insurance for H. But S-corp does reimburse the personal premiums for the one rank-and-file employee. Are we okay in this situation b/c we have just one "participant?"

JAD (talk|edits) said:

4 February 2014
We discussed that sort of thing. She said that the plan has to meet the various discrimination rules, otherwise it blows up. But if the plan has only one participant and doesn't run afoul of the discrimination rules, then it is ok.

So for your first example, if the rank and file employees are not excludable for some reason (seasonal, part-time, etc.), then the plan would be discriminatory. This does not work. But it's not that the plan is not in compliance with the ACA. The plan itself doesn't work because it is discriminatory.

In your second example, the rank and file employee is the one receiving the benefit, not the owner. The discrimination rules are obviously in place for the opposite situation. If the plan is deemed not discriminatory, and I have no idea if it would, would the plan be outside chapter 100? I think so.

Again, per the attorney, it's two issues: if there is only one participant, the plan is excepted from the market reforms, but if the plan is discriminatory, it blows up anyway.

Ckenefick (talk|edits) said:

4 February 2014
What discrimination, specifically, are you referring to? Sec 9802 discrimination?

JAD (talk|edits) said:

4 February 2014
No. If Chpt 100 does not apply per 9831(a)(2), then 9802 wouldn't apply. I am talking specifically about the discrimination rules in 105.

However, the reason that I sent this work upstream is because of all of the other discrimination rules that I am not familiar with. There are rules that can apply when benefits are provided by a company that also provides health insurance. There are nondiscrimination tests under the Public Health Service Act. DOL regs. ERISA rules. I do not want to navigate determining what might or might not apply.

At the end of the day, what she said was that 105 still works for a single participant if the plan is nondiscriminatory because 9831(a)(2) shelters the plan from the market reforms.

Ckenefick (talk|edits) said:

4 February 2014
Are we talking medical expenses or medical insurance?

JAD (talk|edits) said:

4 February 2014
expenses

DebP (talk|edits) said:

4 February 2014
JAD - single PARTICIPANT - correct? My client is exactly in the 2nd example above in Chris's example - two people - 100% shareholder and rank and file. SH has insurance through H connected to his work, so therefore only rank and file is reimbursed. No penalty, no discrimination AND not taxable?

JAD (talk|edits) said:

4 February 2014
although I don't think that it would make a difference. The plan could reimburse either.

DebP (talk|edits) said:

4 February 2014
JAD - had problems posting my last one - TA had a blip right in the middle, so will repeat (sorry)

JAD - single PARTICIPANT - correct? My client is exactly in the 2nd example above in Chris's example - two people - 100% shareholder and rank and file. SH has insurance through H connected to his work, so therefore only rank and file is reimbursed. No penalty, no discrimination AND not taxable?

Ckenefick (talk|edits) said:

4 February 2014
although I don't think that it would make a difference. The plan could reimburse either.

Not sure what this means...

DebP (talk|edits) said:

4 February 2014
I think he is talking medical expense or the insurance from your question above.

JAD (talk|edits) said:

4 February 2014
JAD - single PARTICIPANT - correct? My client is exactly in the 2nd example above in Chris's example - two people - 100% shareholder and rank and file. SH has insurance through H connected to his work, so therefore only rank and file is reimbursed. No penalty, no discrimination AND not taxable?

Deb, I don't know the discrimination rules and don't care to learn them. If there is only one participant in the plan, then the plan is outside of Chpt 100. But if the plan is discriminatory, then there isn't a plan. Is this discriminatory? I have no idea.

Chris, Deb is correct. I was saying that if the plan is outside of Chpt 100, my understanding is that it could reimburse either or both expenses & insurance.

Ckenefick (talk|edits) said:

4 February 2014
If we're talking about the reimbursement of medical insurance, aren't we talking about Section 106?

JAD (talk|edits) said:

4 February 2014
She said that one plan can encompass both 105 and 106. In this particular situation, health insurance is not a concern. We have been focused on long-term care insurance, which is an excepted benefit anyway. In other words, an employer can still provide that benefit without dealing with the market reforms because of 9831(b) and 9832(c). The issue of the number of people in the plan came up because of the client's desire to retain the section 105 benefits. In the course of the discussion, she indicated that the employer can still reimburse the health insurance premiums under 106 if the plan is excepted from the rules under 9831(a). I've been doing the reading as she's brought all of this up, and it seems consistent with the law.

Ckenefick (talk|edits) said:

4 February 2014
In the course of the discussion, she indicated that the employer can still reimburse the health insurance premiums under 106 if the plan is excepted from the rules under 9831(a)

Yeah, I think that's the gist of it...and I think attorney has clarified that to be excepted, we perform a "participant" count, not an employee head count.

For purposes of this discussion, I suspect the 105 Plan issue isn't much of an issue, seeing that we're talking about S-corporations here...and a typical medical reimbursement plan isn't used with an S-corp since there's no tax benefit to the owner, so most small S-corp's wouldn't even maintain such a plan.

DebP (talk|edits) said:

4 February 2014
True. And my head is spinning, but I like that answer much, much better than the conclusion we came to a couple of weeks ago. And if it's a participant count, then we can easily reimburse as long as it's one person. But my million dollar question - does all this mean we can keep it non-taxable as well if it's just the one participant? I think yes...

JAD (talk|edits) said:

4 February 2014
I've been dealing with C corp, not S corp. Deb, yes, benefit is non-taxable to participant, again, assuming that the plan is nondiscriminatory.

Pretty interesting stuff, right?

I do wonder though, how 9831(a)(2) made it into the Code. I guess some lobbyist has a plan, and he didn't want to lose his benefit.

Also, did anyone notice 9831(a)(1)? You gotta love that, right? Just crush the private sector with all of this complexity, while excluding the govt plans.

Ckenefick (talk|edits) said:

4 February 2014
Yes.

Bushmaster (talk|edits) said:

18 February 2014
C Corp has less than 10 employees and has been reimbursing health insurance premiums for the shareholders (3) who also work in the business and receive w-2 pay for their services. C Corp has been taking deduction for HI premiums and shareholders have NOT been including the premiums in their income pre 2014.

If I read this thread correctly, this will not be allowed in 2014 and will incur a $100 penalty per day per participant. The work around seems to be to add the cost of the premiums to the w-2 subject to income tax, FICA, and medicare.

Client could go the group plan route but would lose their individual policies which are much cheaper, but would have to offer to all employees.

If so, is there anyway to plan around the negative impact of this?

And, what are you telling your clients who are in this situation and what planning are you doing?

Thanks all!! Its good to see this place up again!!

Wiles (talk|edits) said:

18 February 2014
Bushmaster, I am sure we all have many clients across all entity types that are doing this exact thing. We have been giving them the green light under Sec 106 for many years, decades.

And, what are you telling your clients who are in this situation and what planning are you doing?

For my clients that have asked, I am telling them that this appears to no longer be allowable, but am waiting for some guidance from the IRS and our industry research providers. I am telling them that for now this appears to be an unintended consequence of ACA, and we are hoping there may be some relief as there has been for many facets of this law. If there isn't then they need to be prepared to make some payroll adjustment by year end. I am sure my advice is not conservative enough. I am sure others are telling their clients to stop this now.

I am hoping that when we come out of the hustle of tax season that we will have more clarity. Perhaps this is wishful thinking. But at that time I will be sending out a letter to all of my business clients. Chris & Jessica, can you please let me know when you have my letter ready :)

Ckenefick (talk|edits) said:

18 February 2014
It's already done. Go into Word and type, "Dear Client, please see attached." Print said Word document out. Then, print this post out and attach it to the Word document. That's what I did with EADave's post for all my clients that find a vault full of gold underneath their house. By the way, have you ever tried to crack the Thomas Jefferson Beale ciphers, Wiles?

Bushmaster (talk|edits) said:

18 February 2014
I emailed a link to this very thread to someone I am helping with this issue.

Ckenefick (talk|edits) said:

18 February 2014
Email it to Congress.

JAD (talk|edits) said:

18 February 2014
Wiles, too funny!

Bushmaster, I think that the notice makes it very clear that the arrangement is no longer ok. And it is not an excepted benefit, a less than 2 participant plan, or a govt plan, so I don't see how you get out of Chpt 100. If it were my client, I would tell them that they get to choose between offering a group plan and being part of that or treating the reimbursement as income. Anything else exposes them (you?) to the penalty.

Bushmaster (talk|edits) said:

19 February 2014
That is the conclusion I have reached as well JAD.

DebP (talk|edits) said:

13 March 2014
So sadly I had to read back through all of this - I was hoping this issue would go away but it's not.

My 4 employee C-Corp is paying the Medicare Supplemental Premiums for one of it's employee-shareholders. That doesn't even seem like a health plan to me - but it could be just thought of as reimbursable medical expenses. All the other employees got their own health insurance through either spouses or the exchange. When I look at Jessica's postings above, since this is a 60% shareholder, this would blow up because it's discriminatory and not because it's reimbursement for just the one participant "plan" ? I am more worried about the $100 per day penalty than anything else. Am I being too conservative by telling them to add it to W-2 wages for the year?

Captcook (talk|edits) said:

14 March 2014
If all the other employees have waived coverage, I think there would be a strong argument that a group plan was not available and the reimbursement plan would work as you described. I'll be interested to hear if anyone agrees with that.

Ckenefick (talk|edits) said:

14 March 2014
JAD has said a lot of helpful things in this post, and if I may summarize:

We discussed that sort of thing. She said that the plan has to meet the various discrimination rules, otherwise it blows up. But if the plan has only one participant and doesn't run afoul of the discrimination rules, then it is ok.

I underlined the "and." She made the point that if the does not discriminate, then Chapter 100 doesn't apply:

No. If Chpt 100 does not apply per 9831(a)(2), then 9802 wouldn't apply. I am talking specifically about the discrimination rules in 105

I think she's also saying that if it does discriminate, then it's not a Plan, and therefore falls back into the problem area.

Maybe she'll comment further. I think the issue is muddy b/c IRS has said that the discrimination rules will now apply to these things, but they haven't told us exactly how.

I do like Capt's idea, but I am cautious about it. If you have a normal 401k Plan and all rank-and-files elect not to participate, but the business owner does elect to participate, you're gonna run into testing problems. So, these new insurance rules might parallel this kind of testing.

DebP (talk|edits) said:

14 March 2014
Yes - I saw the "and" as well, and worried about the discrimination. AND I think it's too muddy. The amount isn't enough to worry about in this particular circumstance to add it to the W-2 since it's just a Medicare supplement. But I do worry about it when the next situation comes up.

I can see both sides of Capt's and CK's argument. That is a problem....

Smokeytax (talk|edits) said:

14 March 2014
So, right now, what are we advising clients who reimburse employees for health insurance? Are we telling them go ahead until we sort all of this out, or should we tell them to stop immediately until we can get better answers?

Ckenefick (talk|edits) said:

14 March 2014
On 1/1, I told all my clients to run it through payroll, unless I was sure that we'd be fine b/c (1) client already has a group or (2) it is a clear 1-participant situation.

Captcook (talk|edits) said:

14 March 2014
I'm advising the same as Chris.

Wiles (talk|edits) said:

14 March 2014
I am advising the same as Wiles (See 2/18)

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