A recent ruling by the Internal Revenue Service (IRS) addresses a growing trend among employers who, in an effort to avoid the rising cost of providing health insurance, have opted to contribute money towards their employees’ individual health insurance premiums rather than provide group coverage for their workforce. Employees then use that money — which does not count as income and therefore is tax-free — to purchase coverage in the individual market.
But in its Notice 2013-54, the IRS has made it crystal clear that this practice is not in compliance with the provisions of the Affordable Care Act (ACA). In other words, it is against the law. And it comes with a steep penalty: $100/day, per employee. That’s $36,500 per year, per employee.
What Does IRS 2013-54 Mean to Employers?
The title of a recent New York Times article portrays a pretty accurate description of the ruling’s impact: “I.R.S. Bars Employers From Dumping Workers Into Health Exchanges.”
In other words, employers cannot simply give their employees cash and send them off to buy their own coverage using tax-free money.
Now that does not mean an employer can’t raise employees’ salaries, providing them with more money to use towards health insurance. The key is as salary, that money is taxed as income to the worker, and is subject to payroll tax for the employer.
Offering Health Insurance Helps Attract and Retain Employees
Small employers (under 50 employees) are not required by law to provide health insurance. So why should they?
The answer is straightforward. A small business that values its workforce and wants to be competitive in its ability to attract and retain talented employees will need to offer an attractive package of benefits. And health insurance is top on the list.
If you own a small business and have been giving your employees money towards health insurance premiums, let us help you figure out the best way to be in compliance with the law AND continue providing a valuable benefit to your employees.
Virginia Medical Plans has helped hundreds of small businesses find the right group plan to meet the needs of their workforce, and fit into their budget.
Contact us today to see how we can help you!