Businesses using health reimbursement plans could be in a pickle

“Extension on the Go” by Debbie Johnson. Episode 122: Health Reimbursement Plans

COLUMBIA, Mo. – A glitch on your taxes is the kind of thing that can keep you awake at night. For some employers, an announcement late last year could lead to many sleepless nights. But don’t panic, there’s a fix.

In November 2014, the Treasury Department and the Department of Labor made it clear that stand-alone health reimbursement plans are no longer allowed because they are not compliant with Affordable Care Act market reforms.

According to the Department of Labor, employers who do not offer health insurance but instead reimburse employees for the cost of acquiring health insurance have essentially established a “group health plan.” These plans would then be subject to ACA market reforms and deemed noncompliant because the accounts impose limits on the amount of reimbursement and plans may not provide required benefits. This decision was made retroactive to Jan. 1, 2014.

Employers who use stand-alone health reimbursement accounts could face stiff penalties.

“With a stand-alone health reimbursement arrangement, the penalty is $100 per employee per day,” said Brenda Procter, associate professor of family finances for University of Missouri Extension.

The IRS is giving employers options for correcting their noncompliance and a way to avoid crippling fines.

“You have 30 days to become compliant by either offering health insurance or just giving employees increased compensation without tying it to health insurance in any way,” Procter said. “As long as they stop offering these kinds of arrangements they can claim an exception to the penalty when they file their taxes.”

Procter says your 30 days start when you consult a tax professional and become fully aware of this new ruling. Your tax professional also has 30 days to help bring you into compliance.

If you’ve been offering health reimbursement to your employees, getting the assistance of a tax professional will be very important when filing your 2014 taxes. Procter said these professionals are now ready and able to help businesses and provide the documentation needed to avoid a fine on 2014 taxes.