Small businesses that reimburse employees for the cost of premiums for individual health insurance policies or pay their health costs directly will be fined up to $36,500 a year per employee under a new Internal Revenue Service regulation that took effect July 1, 2015. According to the new rule, an employer arrangement that reimburses or pays for employee individual health premiums is considered to be a group health plan that is subject to the $100 per-employee per-day penalty. The penalty applies whether the reimbursement is considered a before-tax or after-tax contribution. The new penalty is more than 18 times greater than the $2,000 Affordable Care Act large employer-mandate penalty for not providing health insurance at all. Employers with fewer than 50 workers are not exempt, as they are from the employer-mandate penalty. The rule covers employers with more than one employee. Employers can exclude workers who have been with the company for less than three years, are under age 25, or are part-time. S-corporations are exempt through the end of this year.
Rep. Charles Boustany has introduced legislation in the House (HR 2911) and Sen. Charles Grassley introduced legislation in the Senate (S 1697) to attempt to remedy this problem. Both bills are awaiting congressional action.