By Kathy Ploch, CPA-Houston
Earlier this year, TSCPA’s federal tax committees asked the U.S. Treasury Department for administrative relief on a new tax under Code section 4980D that fines employers $100 per day per employee for health coverage reimbursement arrangements that do not meet the Affordable Care Act insurance reform requirements. This affects employers in the small group market that offer stand-alone HRAs to help defray the cost of employees’ insurance premiums and medical expenses. IRS Notice 2015-17 delayed penalty enforcement through June 30, 2015; employers may now be liable for the excise tax.
Section 4980D also impacts S corporations’ 2-percent shareholder-employee health care arrangements. S corporations generally rely on IRS Notice 2008-1, which provides that if they pay for or reimburse the health insurance premiums of a 2-percent shareholder-employee, then the payments are included as income and deductible under Code section 162(I). Notice 2015-17 indicated that unless and until guidance is issued, the excise tax under Code section 4980D will not be imposed, and taxpayers can still rely on Notice 2008-1 through the end of 2015.
Proposed bipartisan legislation in H.R. 2911(S. 1697), the Small Business Healthcare Relief Act of 2015, would provide a fix for section 4980D penalties by allowing those employers not subject to the employer mandate to offer HRAs to their employees. Both the House and Senate bills have been referred to committees. At this time, the proposal does not include language on 2-percent shareholder-employee arrangements. TSCPA’s Federal Tax Policy Committee is considering a letter to Congress in support of the proposed legislation.