Little-Known Provision of New Law Provides Tax Relief and Benefits for Small Employers
By Richard A. Mann, Mann Law PC
Congress passed and the President has signed into law the 21st Century Cures Act. While most of what you will read in the media is about how it attacks opiate addictions which is a great goal, it also reauthorized Health Reimbursement Arrangements (HRA). This was a plan where an employer could reimburse employees for medical expenses including the employees cost of health insurance. To qualify, you must incur the expense and the employer must have a plan. Basically, it allows small employers (who do not fall under the Affordable Care Act (ACA) mandate to cover employees i.e. less than 50 employees) to create a plan to reimburse the employee when the employee obtains their own health insurance. If an employer supplies the insurance, then the plan does not qualify and the employer cannot deduct from the employee’s check to fund the plan.
One might ask, "Why have the plan if I cannot afford to pay for your employee’s health insurance? How can I afford this?"
First, you do not have to pay the entire cost. You can pay a portion which allows the employee to purchase health insurance for themselves. Such provisions were in the law a few years ago, but it was repealed by the ACA commonly known as Obamacare. I provided such a plan for my employees.
Second, both you and your employee will like that the plan allows you to pay it tax-free to your employees, meaning you do not pay the additional employment taxes, thus your employee also receives it tax-free. There are restrictions that can affect the taxability on the employees end that can be eliminated by your plan.
For additional information you can refer to this Forbes article, or to the language in Section 18001.
I had such a plan and my employees were very disappointed when it was abolished. The law is effective as of January 1, 2017, so you should contact your CPA as soon as possible to explore the benefits. It is a great method to incentivize your employees to have health insurance and make it more affordable without increasing your employment taxes OR their taxes.
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