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Small Employers, Listen Up: ACA Fine May Impact You

Up until this point, small businesses – those with less than 50 full-time or full-time equivalent employees – were not faced with costly fines like their Applicable Large Employer (ALE) counterparts under the Affordable Care Act (ACA). But that’s no longer the case, according to a tax imposed under Internal Revenue Code Section 4980D.

The IRS announced it no longer will waive penalties for small employers who reimburse or pay an employee’s health insurance premium that is not a part of an employer sponsored group plan. The rule, which was already in place for ALEs, will impose a $100 per-day excise tax on employers who continue this practice. The maximum amount an employer will be fined in a calendar year is $36,500 per employee.

Small employers, however, are not subject to the ACA’s Employer Shared Responsibility provisions, which require ALEs to offer affordable coverage that provides minimum value and essential coverage to a certain percentage of their employees. ALEs subject to the rule then could be fined on a month-by-month basis for individuals who receive a tax credit through an exchange, also known as a health insurance marketplace.

The rule was established in IRS Notice 2013-54, 2013-40 IRB 287, which stated that “employer payment plans” fail to comply with the ACA’s group health plan. Under this guidance, “employer payment plan” applies to group health plans where an employer chooses either to reimburse employees for all or some of their premium expenses paid for that individual’s coverage, in lieu of offering health insurance. Temporary relief was available for ALEs, but that expired June 30.

While this is one of the first penalties small businesses face as a result of the ACA, employers with less than 25 full-time equivalent employees may qualify for tax credits, which could aid more than 90 percent of U.S. firms.

The content of this blog is intended to keep interested parties informed of legal and industry developments for educational purposes only.  It is not intended as legal opinion or tax advice and should not be regarded as a substitute for legal or tax advice.

About the author
Author picture, Jason Bodin
Jason Bodin
Jason Bodin has been the communications pulse for a number of organizations, including Paycom, where he serves as director of public relations and corporate communications. He helped launch Paycom’s blog, webinar platform and social media channels. He aided in the development of Paycom’s tool to assist organizations in complying with the Affordable Care Act, one of the largest changes in health care the country has seen. A graduate of the University of Oklahoma, Bodin previously worked for ESPN and Fox Sports. In his free time, he enjoys adventuring with his family, reading and strengthening his business acumen.