The small employer transition relief from the IRS, put into effect per Notice 2015-17 in light of the market reform restrictions in place under the Affordable Care Act (ACA), expires June 30, 2015. The relief was implemented to allow small employers additional time to make the move over to an ACA-compliant group health coverage or find an alternative option before penalties take effect.
Small businesses that have received the temporary relief since Jan. 1, 2014 are those that use employer payment plans, in which an employer pays for or reimburses the premiums of an individual health insurance policy to the employee. According to MarketWatch, these plans are popular among small employers because they avoid the expense of a full-scale company health insurance plan.
The employer payment plans fail to meet the ACA market reforms, whether they are put into effect before or after tax. Companies with fewer than 50 employees for the prior calendar year that have not transitioned away from such plans by June 30, 2015, will face penalties of $100 per employee, per day.
Circumstances in which companies may continue to use employer payment plans are limited. The few exceptions include:
- Companies with only one participating employee will not face the $100 per employee, per day penalty.
- S corporations will also be exempt from the penalty through Dec. 31, 2015 for those employer payment plans that affect the shareholders who hold more than 2 percent of the company stock only.
- Companies may also avoid the penalty through an increase in the employee’s pay that would help in paying for health care, so long as the increase is not conditioned upon the purchase of health care and the employer doesn’t endorse a particular plan.
Most small businesses will need an ACA-compliant health care plan in effect come July 1, 2015 or face the steep $100 per employee, per day penalty.
