Legislation was signed into law last week bringing back the ability for employers to directly reimburse employees for health care costs. This was taken away a few years ago after the new ACA laws came into play, often with severe penalties in place for noncompliance. But recent legislation changed that.
The new Qualified Small Employer Health Reimbursement Account allows employers to reimburse employees for health care costs, tax-free to the employee, and deductible by the business. Since this legislation was just signed into law last week, we don’t have all the details, but here are some key points:
- In order to qualify, you must not be an “applicable large employer” which is any company with an average of at least 50 full-time employees. So, you must have less than 50 employees to qualify to offer this plan
- The employer cannot offer a group health plan to any of its employees
- Reimbursements must be limited by amount. You can reimburse up to a maximum $4,950 for single coverage or $10,000 for family coverage, and can include reimbursement for personal insurance premiums, co-pays and out-of-pocket costs. But this is where you will want to specify which costs are eligible for reimbursement in your written plan, or if you wish to reimburse less than these amounts
- You must have a written plan
- The employer must receive evidence of insurance or expenses from the employee. In other words, the employee needs to document the expenses they incurred before you can reimburse them. The employee also must have minimum essential coverage (in other works they must be insured through a private plan).
- You must provide minimum 90-day notice to employees of availability of this plan
- You must include all employees, except for the following exceptions:
- Part-time or seasonal employees
- Union employees
- Employees under age 25
- Employees with less than 90 days of service
- Nonresident aliens
- This is likely not available to S-corporation shareholders, but we are awaiting clarification on this issue.
The reimbursements will be reported on the employees’ W-2 at the end of the year, not as taxable income, but only as informational reporting to the IRS. Therefore, reporting systems will have to be maintained to have this information reported properly at year-end. Ideally, these reimbursements will be paid through your payroll system which makes your reporting and tracking much simpler.
This plan can be offered starting January 1, 2017. However, you may find delays in third-party administrators offering these plans as they come up to speed on the new rules and develop plans around the new rules.
As we get more details on this plan, we will be sure to let you know.