Author: Betsy Glaeser, Senior Tax Associate
After much pressure from the AICPA and accounting professionals alike, the IRS issued Notice 2015-17 on February 19, 2015, which provides some interim relief for small employers from the Code Section 4980D excise tax for failure to comply with the market reform provisions of the American Care Act (ACA). At $100 per day per affected participant, the transition relief will be welcomed by both small business employers and practitioners. The Notice provides the following relief:
- Small employer (fewer than 50 full time equivalent employees) reimbursement plans will be permitted through June 30, 2015, without imposition of the Sec. 4980D excise tax. Notice 2015-17 acknowledges that the Small Business Health Options Program (“SHOP”) Marketplace is still in transition and the transition to SHOP Marketplace coverage and alternative coverage will take time to execute. As such, the newly issued Notice provides that the Sec. 4980D excise tax will not be assessed for any failure to satisfy market reforms by employers that are not otherwise subject to the ACA and provide payment plans that pay or reimburse employees for individual health policy premiums or Medicare Part B and Part D premiums through June 30, 2015.
- If certain requirements are met, employers can offer coverage or reimbursement for individual policies providing coverage under Medicare Part B and Part D. Prior guidance provided that an employer plan to pay or reimburse some or all of Medicare Part B or Part D premiums for employees constituted an employer payment plan. If such payment plan covered two or more employees, it constituted a group health plan that was then subject to market reforms. Under the prior guidance, an employer payment plan may not be integrated with Medicare coverage to satisfy the market reforms because Medicare coverage was not a group health plan. Under Notice 2015-17, however, a program that directly or indirectly provides Medicare premium reimbursement will not be subject to the Sec. 4980D excise tax, if certain requirements are met.
- S-Corporation shareholder reimbursement arrangements will not be subject to the Sec. 4890D excise tax through the end of 2015. Prior to the application of market reform provisions of the ACA, if an S Corporation pays for or reimburses premiums for the individual health insurance coverage of a 2% shareholder, the payment or reimbursement is included in the shareholder's income and the shareholder would deduct the amount of the premiums under Sec. 162(I). With the market reforms in place, the following question has arisen: does this employer payment arrangement constitute an employer payment plan, and would therefore be subject to the market reform provisions and any penalties therein? Notice 2015-17 provides that until further guidance is issued, and at a minimum through the end of 2015, the Sec. 4980D excise tax will not be assessed for any failure to satisfy the market reforms by a 2% S corporation shareholder-employer healthcare arrangement. Therefore, the treatment for payment of or reimbursement for the health insurance premiums of a 2% S corporation shareholder remains unchanged under the ACA until at least January 1, 2016.
- Employer increases to employee compensation do not qualify as an employer payment plan. As provided in Notice 2015-17, if an employer increases an employee's compensation, but does not condition the increase on the employee's purchase of health coverage (or otherwise guide the employer to a specific policy or health insurance provider), the arrangement is not considered to be an employer payment plan. Because the arrangement generally will not represent a group health plan, it is therefore not subject to the market reform provisions of the ACA and the penalties detailed therein.
While Notice 2015-17 provides clarity and relief to a number of specific aspects of the ACA, many facets of the Act remain to examine and apply. Even with the clarification provided in the Notice, the integration of the market reform provisions continues to be an arduous and intricate process.
Please contact your Keiter advisor to assist you with your ACA compliance efforts and to assist with any questions you may identify. 804.747.0000 | email@example.com
Betsy Glaeser is a Senior Tax Associate at Keiter. She works to provide tax savings opportunities for clients in a variety of industries with a focus on the Real Estate and Construction industry. Betsy is also a member of the Firm's Real Estate & Construction Industry team. Read more of Betsy's insights on our blog.