Employer Payment Plans

Posted by BAS - 19 March, 2015


The Affordable Care Act prohibits an employer from paying or reimbursing employee premiums for individual health insurance. These types of arrangements violate both the annual dollar limits and the preventive services mandates under health care reform, since they are considered separate group health plans that must meet health care reform requirements.   

An employer payment plan does not apply to an arrangement in which an employee can either have after-tax amounts applied to health coverage or receive the amounts as cash. It also does not apply if an employer increases an employee’s compensation but does not condition the increase on the purchase of health coverage. 

  • A new notice issued by the IRS gives limited, temporary relief for employer payment plans.
  • The IRS will not impose taxes on employer payment plans maintained in 2014 or the first six months of 2015 for employers that are not applicable large employers (i.e., for employers with fewer than 50 full-time equivalent employees). These employers do not have to report violations on Form 8928.
  • An S Corporation will not be subject to penalty or required to file Form 8929 solely because it pays for or reimburses premiums for individual health insurance coverage for a 2% shareholder.

All employers that reimburse employees for the purchase of individual health insurance should review their practices to make sure they comply with health care reform requirements.

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