Former President Barack Obama recently signed into law the 21st Century Cures Act, which provides substantial relief for small businesses and their employees. Offering health insurance or health insurance reimbursement to employees helps businesses retain top talent, but since the passage of the Affordable Care Act, small businesses either had to purchase a group health plan (often expensive) or offer no health insurance help to their employees. The Century Cures Act now allows small businesses with less than 50 full-time equivalent (FTE) employees to reimburse their employees for health insurance obtained through non-group health plans using a Qualified Small Employer Health Reimbursement Arrangements (QSE HRAs).
Please carefully read the rules below regarding the administration of QSE HRAs. These new rules take effect for health insurance plans whose plan years start after Dec. 31, 2016. This provision does not distinguish between plans obtained by employees through normal markets or through the exchanges established as a result of the Affordable Care Act (ACA).
- Employers can reimburse up to $4,950 for a single employee or up to $10,000 for a family. These numbers will be adjusted for inflation annually.
- Employers must offer these HRAs to all full-time employees except for the following:
- Any employee(s) with less than 90 days of service,
- Any employee(s) under the age of 25,
- Any employee(s) covered by collective bargaining arrangements for accidents and health benefits, and
- Any part-time or seasonal employee(s).
- An employer cannot offer a group health insurance plan to its employees in addition to HRAs.
- Employers must make the same contribution for all eligible employees, with some exceptions:
- Contribution amounts are allowed to vary based on the age of the individual or the individual’s family members that would be covered by the plan.
- Contribution amounts can also vary based on the number of individuals covered by the plan.
- These HRAs will not be subject to the excise tax or the penalties put into place by the ACA for group health plans that do not meet ACA market reform requirements.
- Normally, payments or reimbursements from a HRA are not considered part of taxable income.
- An employer is required to notify its employees of the following no less than 90 days prior to the end of the plan year:
- The amount of their benefit for the HRA for the upcoming year
- That the employee should provide the insurance exchange with the amount of their HRA benefit for the upcoming year so that the exchange can decrease the amount of subsidy dollar for dollar.
- That says that if the employee is not covered under minimum essential coverage for any month, the employee might be subject to tax and that their HRA reimbursements may be included in gross income.
At Aprio, formerly known as HA&W, we have a team dedicated to the business, accounting and tax issues surrounding the Retail, Franchise and Hospitality sector, and we will keep you updated on any related announcements or regulations.
Questions? Comments? Reach out to Tommy Lee at firstname.lastname@example.org or 770-353-7170.