21st Century Cures Act Relieves Small Business Health Care Burden

Tax Law and News Affordable Care Act and taxes

On Dec. 13, 2016, President Obama signed into law the 21st Century Cures Act. Title 18 of the law exempts qualified small employer health reimbursement arrangements (HRAs) from group health plan requirements. This eliminates the severe penalties the IRS placed on businesses for reimbursing individuals for buying their insurance – penalties that ran at $100 a day, or $36,500 a year, per affected employee.

Beginning on Jan. 1, 2017, companies with fewer than 50 full-time employees – which are not subject to the Affordable Care Act’s employer mandate – can reimburse employees for purchasing individual health insurance as if it were directly paying the premiums on a group health policy. The small business will neither owe payroll taxes on its premium contribution nor will the employee pay taxes on it. To qualify, the HRA must meet certain requirements, including providing the plan on the same terms to all employees, being funded solely by the employer, and limiting payments and reimbursements to $4,950 for individual employees and $10,000 for family plans.

The passage of this law is an opportunity to advise your small business clients that want to help employees with insurance premiums without going through the administrative complexities of managing a group plan.

Read more about this new law from Forbes.