Tax Advisory: Small employer health reimbursement accounts no longer subject to ACA rules and penalties

By Denise Felber, HoganTaylor Tax Partner

On December 7, the Senate passed the “21st Century Cures Act”.  It is expected to be signed into law by President Obama and effective for years beginning after December 31, 2016.

Before the Affordable Care Act (“ACA”), employers could reimburse medical expenses for an employee through a health reimbursement account (“HRA”).  The plans could be “stand-alone” or as a part of their medical plan.  The employer would set the amount they would pay annually, the employer would deduct the reimbursement and the employee would not be taxed on the reimbursement.  After the passage of the ACA, the use of the stand-alone HRAs was eliminated due to severe penalties imposed by the ACA ($100 per day).

The stand-alone HRA can be offered to employees again if:

  • The employer does not offer a group health plan to any employee,
  • It employs fewer than 50 employees (under the ACA rules),
  • It is funded by the employer,
  • The employee does not contribute to the HRA through withholding,
  • The employee provides expense document,
  • The employee has minimum essential coverage,
  • The reimbursement is disclosed on the Form W-2 as nontaxable benefits,
  • And the reimbursement does not exceed $4,950 (single) or $10,000 (family).

As with any employee benefit, there are rules about notification to the employees, employee qualifications, discrimination and documentation.  HoganTaylor LLP can provide information to assist our clients in establishing these plans.

Merry Christmas and Happy Holidays from the Congress and Senate!