IRS eases one Obama health law penalty

IRS eases one Obama health law penalty 

Posted: 7:55 pm Thursday, February 19th, 2015

By Jamie Dupree

While the Obama Administration was busy trumpeting the latest enrollment numbers for health insurance this week, the feds also moved to ease the pain on some small businesses by giving limited relief on a penalty related to the Obama health law that most people probably had no idea existed.

“ACA penalty relief for small employers,” was the bland title of the IRS publication issued this week that zeroes in on small businesses (under 50 workers) which give money to employees to help cover the cost of health insurance.

Under the Obama health law, small businesses that do not offer insurance plans could face a fine of $100 per day per employee – for giving them money to help offset the cost of their health insurance coverage, even if the money has regular taxable wages withheld.

“I’ve heard from several Iowa small business owners who feared they could be subject to thousands of dollars in penalties simply because they helped their employee pay for health insurance in 2014,” said Sen. Charles Grassley (R-IA), who has pushed for a change.

“This is the kind of problem that Obamacare created because it was poorly considered and rushed into law,” Grassley added.

The “dreaded” Section 4980D penalty

At issue is Section 4980D of the Affordable Care Act, which deals with businesses that reimburse workers for their healthcare costs.

The Obama health law considers such arrangements illegal, and has an excise tax penalty of $100 per day per employee for each violation.

That would be $36,500 for a full year.

It used to be that it was okay for employers – who did not offer health coverage – to reimburse workers in order to offset the cost of their health insurance.

But that changed under the Obama health law, which treats such arrangements as group health plans that do not meet federal requirements for coverage.

This “transition relief” from the IRS allows businesses with fewer than 50 workers to avoid paying the excise tax penalty in 2014, and in the first half of 2015 – giving them time to fix their insurance reimbursement arrangements.

One interesting change is that if a company decides to keep giving workers extra income to pay for health insurance coverage – that is not allowed.

But, if companies give workers extra money and say that it doesn’t have to be used to pay for health insurance, then that is evidently okay.

Still confused? Here is a link to a rundown by the Center for Agricultural Law and Taxation at Iowa State University.