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IRS Notice 2013-54 - To Quote the IRS Guidance/FAQ

Story Content Provided by Conference Associates, Inc. on 5/29/14

We recommend you read the notice, full text is available here.

To Quote the IRS Guidance/FAQ:

Q1. What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?

A1. Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.

(Source: http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements)

Group health plan, as defined by IRS Section 5000(b)(1): "means a plan (including a self-insured plan) of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families."

What to do?

If these regulations appear to apply to a client of yours, we advise moving to remedy the situation as soon as possible since this is a per-day fine. We recommend the client seeking guidance from their Accountant and Lawyer to determine if this regulation pertains to their particular situation. If it does, there are a few legal alternatives outlined by the guidance. Under Section 4890D, there are quite a few exceptions that may apply to help clients avoid paying part or all of the fine based on their situation.

[Disclaimer: None of the above is to be considered legal advice. We are not lawyers, and are simply relaying recent and important guidance. If this appears to apply to you or your client, we advise you seek legal counsel equipped to interpret the laws and provide legal advice.]

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