Complicated question, complicated answer, but I'll do my best.
-snip-
Small employers are not required to offer insurance. If they choose to offer insurance it must be compliant or they face the 4980D tax. In this case, a health reimbursement arrangement is not considered compliant, since it is a "plan" that does not meet the requirements of Chapter 100. So, a small employer using a reimbursement is subject to the 4980D tax.
There are three main ways a small employer can avoid the 4980D excise tax:
1. Offer compliant insurance;
2. Offer no insurance; or
3. Offer a "no strings attached" payment to employees to use for insurance or any other purpose.
Thanks. (I'm looking for a 4th as I'll detail below.)
Yep, it's complicated. Most of us tax professionals have had no need to involve ourselves in the HI area. Now it's been forced upon us.
The problem is that many small employers, who were advertised as not being affected by Obamacare, ARE affected. Most such employers reimburse employees for HI in accordance with tax laws and IRS regulations. Those haven't changed. I.e., we're still good for income tax law, but now we've got this 4980D thing to worry about.
I have small clients that have only one employee being reimbursed for HI. I think they're exempt from 4980D because there is only one employee (i.e., the 4th way to avoid 4980D). Here's why:
1. IRS Notice 2013-54:
D.
Affordable Care Act Guidance
1. Market Reforms — In General
The Affordable Care Act contains certain market reforms that apply to group
health plans (the market reforms). In accordance with Code § 9831(a)(2) and ERISA §732(a), the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year, and, in accordance with Code § 9831(b), ERISA §
732(b), and PHS Act §§ 2722(b) and 2763, the market reforms also do not apply to a group health plan in relation to its provision of excepted benefits described in Code §9832(c), ERISA § 733(c) and PHS Act§ 2791(c). Excepted benefits include, among other things, accident-only coverage, disability income, certain limited-scope dental and vision benefits, certain long-term care benefits, and certain health FSAs.
http://www.irs.gov/pub/irs-drop/n-13-54.pdf
Note only the bolded portion.
The above is on page 3 of the PDF.
2. Section 4980D(d)(2):
(2) Small employer
(A) In general
For purposes of paragraph (1), the term “small employer” means, with respect to a calendar year and a plan year, an employer who employed an average of at least 2 but not more than 50 employees on business days during the preceding calendar year and who employs at least 2 employees on the first day of the plan year. For purposes of the preceding sentence, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as one employer.
http://www.law.cornell.edu/uscode/text/26/4980D
The IRS Notice seems to say explicitly that an S-corp with only one employee who is under a reimbursement plan is excluded from section 4980.
The code only implies it by limiting the definition of a small employer (for an exception to 4980 unrelated to my purpose) to one with at least 2 employees. Presumably, the 'at least 2 employees' wording is is there because a one employee employer is already excluded elsewhere and need not be included under 4980D(d)(2).
So, I was just looking for confirmation that a one employee 'plan' is not subject to 4980D. Generally I look to the statute for that, but have been unable to find it. So far, all I have is an IRS notice (above) and some commentary by other professionals.
This is incredibly disruptive. I don't think it will hit the news so many people will never know. But there are literally millions of small business that use (salary) reimbursements plans to (help) provide HI for their employees. Already I am seeing these reimbursements stop. Small employers are not going to risk incurring a $36,500 penalty
per employee to help them purchase HI. Nor can they afford to move to purchasing coverage under a group HI plan.
In essence, no in fact, Obamacare is killing the HI assistance that employees of small businesses currently enjoy. IMO, that's a real step backwards; a big negative. (There are ways to get around this. But they require an increase in income taxes, something Obama promised not to do to the middle class, which is also a big negative.)
Edit: Congrats and good luck with the new job.
Fern