In 2015, TSCPA’s Federal Tax Policy Committee initiated several advocacy efforts for relief of the $100 per day per affected employee penalty to small businesses for health reimbursement arrangements (HRAs) that did not qualify under the Affordable Care Act (ACA) market reform. Two months ago, President Obama signed the 21st Century Cures Act which granted partial relief, the establishment of HRAs for qualified small employers for reimbursements of health insurance and out-of-pocket medical costs (cannot exceed $4,950 individual or $10,000 family) as long as the employee demonstrates to his/her employer that he/she has essential minimum coverage. Reimbursement of Medicare-eligible employees’ Medicare premiums or reimbursement of Medicare supplemental policy premiums are also permissible under the new and retroactive provisions. The new law provided retroactive relief to employers who have been reimbursing employees for individual health insurance policy premiums since the effective date of section 4980D. However, if an employer reimbursed out-of-pocket health costs prior to the establishment of the new HRA provisions (Jan. 1, 2017) and after the implementation of section 4980D, the $100 per day per employee excise tax still applies.
Congress did not address the 2 percent S-corporation shareholder issue, so it appears Notice 2008-1 is still in play. For 2 percent shareholders, in order to deduct the premium on their individual income tax return, the company must reimburse them for the individual premium or pay the premium directly and include the premium amount in the 2 percent shareholder’s Form W-2 wages (box 1) so they can deduct the premium in full on their individual income tax return.
On Jan. 20, President Trump signed an executive order to roll back certain aspects of the ACA, including penalties. However, the order is vague and does not address specific penalties. In a recent AICPA Washington tax brief, practitioners were told to continue calculating individual mandate penalties in preparing Forms 1040 this year for taxpayers not in compliance in spite of the executive order.