Apr 20, 2016 - 10:00am

On the Tax Front, Small Businesses Could Face Surprise Fines


Former Director of Health Policy, U.S. Chamber of Commerce

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Doctor with patient

There is one thing Americans can all agree on: No one likes surprises when it comes to fees or taxes.

Small businesses are already enduring confusing and complex reporting requirements under the Affordable Care Act’s (ACA) employer mandate, but this year some on Main Street could also be surprised by up to $500,000 in penalties for providing employees money for health expenses through “stand-alone” health reimbursement arrangements (HRAs).

HRAs have historically been a popular way for small businesses to give employees money for health insurance premiums or other medical expenses on a tax-free basis. Since many small employers do not have human resource departments or benefits specialists, HRAs are a simpler and easier way for these businesses to help employees with rising medical costs.

However, in 2013 the Internal Revenue Service issued a new rule stating that all businesses providing pre-tax dollars to employees through an HRA, but not also offering a group health plan, will be fined $100 per day, per employee. Over the course of a year, that’s $36,500 per employee and up to $500,000 total. This $100 per day penalty went into effect on July 1, 2015.

Luckily, many in Congress agree on a solution.

The bipartisan Small Business Healthcare Relief Act would once again allow small businesses, not subject to the ACA’s employer mandate, to provide HRAs to help workers and their families pay for premiums and other qualified medical expenses. As we explored in a recent podcast, this would give many small employers and employees additional flexibility as they consider what the right health benefit option is for their company.

Recently, the U.S. Chamber of Commerce and 60 other stakeholders representing small businesses urged the House Committee on Ways and Means to consider this legislation soon – let’s hope they act quickly since U.S. small business confidence has hit a two-year low.

Tell your members of Congress to support the Small Business Healthcare Relief Act

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About the Author

About the Author

Former Director of Health Policy, U.S. Chamber of Commerce

Jennifer Pierotti Lim is the former Director of Health Policy at the U.S. Chamber of Commerce.