An Excise Tax on Health Insurance Reimbursement Plans
With the passage of the Affordable Care Act (ACA) many small employers were surprised to learn that many of their health insurance reimbursement plans could be in violation of the act and subject to an excise tax. The IRS has provided transition relief for those plans, specifically an excise tax will not apply to reimbursement plans from January 1, 2015 through June 30, 2015. The relief is only granted for small employers. After June 30, 2015, reimbursement plans found to be in violation of the act could be assessed an excise tax of $100 per day per employee under Code section 4980D.
A health insurance reimbursement plan is one in which an employer reimburses an employee for heath insurance that the employee has obtained. Under the ACA, those reimbursement are to be included in the employee’s wages. Payments that are included in wages are not considered to be reimbursements (however other conditions also apply). Payments that are not included in wages would be considered reimbursements and the excise tax could apply.
Currently, the excise tax will not apply to more than 2% shareholder arrangements. However, the IRS is considering additional guidance with respect to more than 2% shareholder arrangements.
The IRS notice can be read in its entirety here Notice 2015-17