Can Employers Reimburse Employees for Individual Coverage?

Employers who reimburse employees for individual non-group health plans face a $100 a day or $36,500 per year, per employee excise tax. This rule applies to all employers, but the fine itself is only levied on those who have to comply with ObamaCare’s mandate (firms with 50 or more full-time equivalent employees). The enforcement of the fee was put off in most cases, but it was kicked into full gear starting July 1, 2015.

In general:

  • Employers with over 50 FTE need to offer a group plan.
  • Employers with less than 2 employees can offer whatever they want. However, offering an HRA seems to count as minimum essential coverage (and thus it can’t be paired with premium tax credits or other marketplace assistance; an HRA can be paired with a marketplace plan, but not with marketplace assistance; learn more).
  • Employers with less than 50 FTE should look into group plans first, but can consider an HRP (which is like an HRA with special rules; and i’m not sure if it can be paired with tax credits; learn more about HRPs).

IMPORTANT UPDATE: Since this article was written a fix for small business HRAs was put in place via the 21st Century Cures Act of 2016 under President Obama. As of March 13, 2017 employers began to be able to offer Small Business HRAs called Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). These are Affordable Care Act-compliant health coverage plans for businesses with fewer than 50 full-time-equivalent (FTE) employees. Learn more about QSEHRAs.

TIP: Nothing on this page should be taken as legal or tax advice. There are some rather large fees for getting it wrong, so take that into account. We suggest seeking professional advice before making a health reimbursement choice. When in doubt, try ObamaCare’s SHOP.

On Section 105 Plans?

Saying there has been confusion over employers reimbursing individual health plans is an understatement. After a lot of searching and some great feedback… we have two conflicting schools of thought on section 105 plans. We will present them both and then a conclusion, but first, to make things simple (ish):

According to’s 2015 article IRS Grants Penalty Relief, Issues Guidance on Medical Reimbursement Plans (article) – Certain types of medical reimbursement plans are exempt from the §4980D penalty, including:

  • Ancillary benefit plans – plans that only cover ancillary benefits such as dental, vision, long-term care and disability coverage, which are not considered part of essential health benefits;
  • Integrated Section 105 plans – plans that are coordinated with insurance coverage, so that the combined arrangement provides an ACA-compliant group health plan;
  • Retiree-only plans – medical reimbursement plans covering only retired employees; and
  • One-employee plans – medical reimbursement plans that only cover one employee (must comply with Section 105 nondiscrimination rules).

If you want another take on this see: Risking a Health Insurance Strategy the I.R.S. May Not Approve by the NYTimes.

Where the two schools agree: “To comply with the mandate employers must offer a group health plan”, employers can’t reimburse individual coverage with a section 105 HRA. See the few exceptions to the HRA rule here.

Beyond this there are two schools of thought on what kinds of section 105 plan choices employers have.

School 1ZaneBenefits suggests a section 105 “Healthcare Reimbursement Plan” (HRP). An HRP is a certain type of section 105 plan that doesn’t count as offering health insurance, but is tax deductible for an employer, and tax-exempt for the employee. It can be used to distribute funds to an employee on a monthly basis for health expenses, up to a limit set by the employer. It won’t satisfy market reforms, but also don’t incur the excise tax as it doesn’t break the DOL compliancy rules that the HRA breaks. There is a “use-it-or-lose-it” rule. There is a bit more to it. In general, the plan is structured to meet all requirements set forth by the PPACA, but doesn’t satisfy the employer mandate for 50 or more FTE.

School 2) As a reader put it:  “The IRS has repeatedly stated that employers are prohibited from reimbursing employees for individual health premiums, period, They restated it again in Q&A 2 at An HRA is a 105 plan.

I don’t know what it will take to stop a couple of vendors from promoting this. And, I see you are referring to them for this solution. Calling it a 105 vs a 125 is NOT a work around. Please read Q3 at that specifically mentions 105.

Every major law firm (Alston & Bird, Leavitt and others) that have address this issue have been clear that reimbursement by employers of individual premiums is clearly prohibited, with fines of $100/ee/day. Please, you are putting a lot of small employers at risk based on the opinion of marketers that are unwilling or unable to provide a legal opinion to back their “workaround.”

Our conclusion: School 2 is a misunderstanding of the nuances of how plans can be structured for businesses and the implications of the new PPACA related legislation. Employers should go with a group health plan in most instances, but for those that this doesn’t make sense for an HRP or even HRA could be the way to go. However, Zane’s section 105 alternative HRP can be a smart workaround for those who don’t have to comply with the mandate and don’t want to offer a group plan. This is even more true after the 2016 issued IRS Notice 2015-87 (plain english explainer here). You can get the ZaneBenefits explainer on this here.

Ultimately, after working with ZaneBenefits to ensure we understood their workaround, we feel it makes a good alternative assuming care is taken to structure the plan correctly. Feel free to comment below with questions.

FACT: Small employers will likely benefit the most from offering a SHOP group health plan as tax credits are offered for up to 50% of an employee’s premium based on FTEs and income.

Can an Employer Reimburse an Employee for an Individual Health Plan as Health Coverage?

No, an employer must offer a group health plan to “offer health coverage”. If an employer who has to comply with the mandate tries to reimburse an employee for individual coverage they face a $100 a day or $36,500 per year, per employee fine. The caveat is small employers are exempt from the fee and those who don’t need to offer coverage can offer a “Healthcare Reimbursement Plan” (HRP) instead.

Health care arrangement’s set up under a section 105 reimbursement plan can’t reimburse health insurance premiums for private plans purchased by the employee. Details on the rule and the fine can be found here 26 U.S. Code § 4980D – Failure to meet certain group health plan requirements.

Summary of Fee for Reimbursing Employees for Individual Non-Group Coverage

Now that we know employers can’t reimburse non-group plans lets take a closer look at why so this can all make sense. Here is a quick breakdown of what you need to know:

Employers Should Offer Group Health Plans, Small Employer Can Use the SHOP

The ACA was written to have employers offer group health plans. There is a Marketplace called the SHOP for smaller employers to get cost assistance and buy fairly priced group plans.

Larger employers, who have traditionally paid less for coverage for group plans don’t get to use the SHOP, but they are required to offer coverage to full-time employees or pay a fee. The requirement to offer coverage is called the employer mandate.

An Employer With 1 Employee is Exempt

A small employer is an employer with 2 or more, but less than 50 full-time employees.

According to 26 U.S. Code § 4980D: For purposes of paragraph (1), the term “small employer” means, with respect to a calendar year and a plan year, an employer who employed an average of at least 2 but not more than 50 employees on business days during the preceding calendar year and who employs at least 2 employees on the first day of the plan year. For purposes of the preceding sentence, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section414 shall be treated as one employer.

The Law Wasn’t Super Clear, But DOL and IRS Guidelines Are

Although the law wasn’t super clear about this, later clarification from the IRS and Department of Labor (DOL) clarified that employers couldn’t reimburse employees for individual health plans as Health Reimbursement Arrangements (HRAs) or employer payment plans. Remember this is mainly talking about offering HRAs as coverage for employers who have to comply with the mandate. It’s not talking about all reimbursement options outside of “offering health insurance”.

The Rule Deters “Double Dipping”

The rule was meant to avoid employers getting tax benefits via the HRA while at the same time the employee was using ObamaCare’s subsidized Marketplace’s. That would be “double dipping” (getting double tax benefits on the same dollar. In this case once for employer tax breaks and once from employee getting Premium tax credits and/or out-of-pocket cost assistance).

The Fee Enforces the Rule

To ensure the rule is followed and to prevent employers and employees from “double dipping” and skirting the mandate through the use of Marketplace subsidies and HRAs a large excise tax was enacted for non-compliance.

Luckily There are Exemptions

There are a fair amount of exemptions for business size, not realizing you weren’t supposed to do this, etc, etc. So generally a business won’t get a fee, but will rather get a warning and will have 30 days to fix their ways. Also, as mentioned small businesses have more options than large businesses.

Even Small Employers Need to Offer Group Plans (Although Small Employers are Exempt from the Fine)

Employers who want to offer health insurance or need to under the law should offer group health plans. Reimbursing a non-group plan won’t qualify for tax benefits and may result in a hefty fee.

The Fee Goes into Effect July 1st, 2015

The fee went into effect July 1st, 2015. Make sure you are in compliance with the new rules ASAP.

The Bottom Line

If you are an employer, you should offer your employees a group plan. You can always make any arrangement you want with an employee, but you won’t be able to get tax benefits for offering healthcare if an employee gets non-group coverage. If you are a large employer, you could face the full fee and no exemption if you reimburse employees for non-group coverage.

You can read more about employer health care arrangements here. We go into more detail on reimbursement practices, the fee, and how to avoid it.

What do you think?

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Ashley on

I am even more confused then I was before. Our company of 21 employees (all FT) are offered a group plan (actually two different options). The company pays for the first $300 of the monthly premium. If an employee is on their spouses insurance they are reimbursed for their premium up to the $300 a month. We are confused if we must tax this reimbursement and count it towards income. on

This can be a little confusing, but here is the gist:

The way we understand it is that if you offer a group health plan you are safe and that the excise tax is only levied on firms with 50 or more full-time equivalent that simply reimburse for individual plans (specifically plans bought on HeatlhCare.Gov with cost assistance). You offering your employee’s coverage means that they aren’t eligible for cost assistance and thus you shouldn’t run into a problem.

That being said you should run this by a tax professional (since the tax benefits and tax credits are all tax related.)

Also a bit of advice, you may have access to the small business tax credit at the SHOP since you have less than 25 FTE.

lou torregrossa on

when I turned 65 I had get off the co plan
had to get medcare b and a sup plan
they paid for it
now being over 65 I get the axe because of how the plan was set up
now I have to pay taxes on the money
be fore 65 I got free insurance

Bill on

Please make it clear that one-employee businesses are exempt from these restrictions/fines, correct? There are many, many businesses with this structure. on

You are right a small business is 2 or more, but less than 50 employees for the purposes of this rule. Good catch and thank you.

Cathy on

I work for a company with 1 full time employee and 1 part time employee (under 25 hrs per week) are they considered a 1 employee company for this issue? on

From how we understand this it would be referring to FTE (full-time equivalent employees). So 1 full-time and 1 part-time should be less than 2 FTE in general. We would just clarify that this shouldn’t be taken as professional tax or legal advice given the gravity of the fee and the free-ness of our website.

Randy on


Just want to clarify. If I am covered through my spouses insurance, my employer does not have to compensate me in any way? My employer covers 75% of the cost for employees who enroll. Shouldn’t I get something? on

You are right, if you are covered under a spouses plan than you are forfeiting your employers offer for coverage and compensation. Your employer compensates you through other benefits but isn’t required under law to offer compensation in regards to health insurance.

Joe on

We are in the same boat although my employer opted to just increase my salary by the amount I was getting previously when I waived coverage. One option I considered before my employer raised my salary was just to be double insured. This would generally only be of benefit if you have low to no deductible plans.

CG on

If my husband is covered under my group coverage and his employer has less than 5 employees and does not offer group coverage, is it OK for the employer to reimburse my spouse for the cost of being on my group plan? on

An employer can pay a portion of family members premium, as long as they are on a group plan. An employer shouldn’t be reimbursing individual coverage.

You are asking if it’s ok for his employer to reimburse coverage on your group plan? “Is this tax deductible for the employer”? Does providing an HRA to be used on another group plan (it’s not technically individual coverage) create some sort of loophole?

It sounds like this one could go either way, but would want professional feedback. Perhaps one of our readers knows the answer and will post it below. We will look more in the meantime.

Melissa on

Ok, so we’ve established that it’s legal for them to reimburse an employee for coverage on a spouse’s plan, which is great since my husband’s company does this. Here’s the next question, should this reimbursement be subject to payroll taxes? If it’s a reimbursement, not a wage, then I would say no but I’m certainly not an expert and my opinion is admittedly biased. on

Interesting. I’m fairly certain that it depends on how the employer structures the plan. I know the employer gets tax breaks, but not sure if it’s subject to payroll takes or not. Try asking at too (although I already see the question posed there):

Deborah on

Our employer offers a single paid membership in a group health plan. Employees that do not take the plan (most are on a spouse’s group plan) can receive a cash fringe, currently less than the single membership. The cash fringe is paid as salary and is taxed as salary.
Our auditor has claimed that we are non complaint because we “reimburse” our employees to purchase from the marketplace. We understood that having the group plan and meeting the affordability standard we were compliant. Thoughts? on

Having a group plan complies with the mandate, but the rule about reimbursing coverage is different. You can’t reimburse individual coverage. The question is, “is offering taxable compensation to those who don’t take the health plan ok?” Logic would tell you that it should be, but here is probably what is causing the issue: You can’t discriminate whether you give the cash bonus to someone who is on their spouses plan or someone who will be purchasing marketplace coverage. This means technically an employee could take that bonus and go buy tax payer subsidized insurance and you get the tax benefits of compensating an employee.

Of course in practice this is an odd one. On the surface it seems only fair and cool that an employer offer this benefit to employees who turn down coverage. And it’s not like you are trying to take the full tax break from actually offering an HRA.

We understand both sides of this rule, it certainly could use a bit more clarification and finesse as it does just as much to hurt employers and employees as it does to disincentivize employers from skirting the mandate.

JG on

Are religious groups/schools exempt from having to provide healthcare? on

Religious groups/schools are exempt from providing contraception in some instances, but they are not exempt from providing health coverage assuming the meet the “employer mandate’s” requirement to provide coverage.

Dan on

It’s my understanding that this does not apply for employers with fewer than two participants in an HRA plan.

“The Affordable Care Act contains certain market reforms that apply to group health plans (the market reforms).(2) In accordance with Code § 9831(a)(2) and ERISA §732(a),the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year, and, in accordance with Code §9831(b), ERISA § 732(b), and PHS Act §§2722(b) and 2763, the market reforms also do not apply to a group health plan in relation to its provision of excepted benefits described in Code §9832(c), ERISA §733(c) and PHS Act §2791(c).(3) Excepted benefits include, among other things, accident-only coverage, disability income, certain limited-scope dental and vision benefits, certain long-term care benefits, and certain health FSAs.” on

This is correct. It’s 2 – 50. We actually notate that in the article above. Still important information worth reiterating.

Michelle on

Still confused. If I am the 100% shareholder of a C Corp, and the only regular full time employee, may I obtain an individual HI policy through the Marketplace, have my C Corp pay the premiums and deduct the cost on the corp level? If this is allowed, I would think there is a loophole here for small business owners to double dip – deduct the insurance and qualify for the premium tax credit on the tax return! on

We are not experts on this, but hopefully one will comment on this thread and our novice opinions.

A S corp works like being self employed as the owner, you deduct the part of the premium you pay (after subsidies on the Marketplace), but the money for the premium is taxable. A C corp you can offer yourself coverage as a benefit, with tax benefits, and can get individual coverage with subsidies. This may be a bit of a loophole, but you are only getting the tax deduction on the part of the premium you are paying and not being taxed on that money. The question is that if you get too many tax credits and thus “overpay” on coverage if this is calculated at tax time based on the actual cost as stated on form 8962 (the one where you adjust health insurance tax credits).

If nothing else a C corp with one employee is an interesting thing to look at in regards to the ACA. Pre-ACA it had some additional benefits for the way writing off premiums worked, perhaps this still applies.

Nathan M on

I’m a tax accountant and I’m researching the same issue for a client who recently incorporated his business. I quote the IRS directly from notice 2015-17:

“Code § 9831(a)(2) provides that the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year. Accordingly, an arrangement covering only a single employee (whether or not that employee is a 2-percent shareholder-employee) generally is not subject to the market reforms whether or not such a reimbursement arrangement otherwise constitutes a group health plan.”

This sounds like a lot of legal jargon, so let me explain. The ACA requires employers to offer insurance under a group coverage plan. Employers typically cannot pay or reimburse employees for individual coverage, or they will be subject to the $100 a day penalty. However, there are a few exceptions to this rule. One of these exceptions is if you are only paying individual coverage for one participant. Under this exception, the ACA penalty doesn’t apply. Therefore, under your circumstance, since you are the only employee of your corporation, the corporation can pay for subsidized health insurance that you purchased through the market place and deduct it as a fringe benefit. on

Thank you so much for the comment. Good information!

Wanda on

Finally a straight answer that I can understand. Thank You.!

Lori on

I work for an employer with more than 25 but fewer than 50 employees. I’ve been looking at the IRS’ notices and fact sheets. Where do you find the reference that says the IRS will not apply the $100/day excise tax to employers that are not ALEs (under 50)? From my read of Notice 2015-17, we were only waived through June 2015 and from here forward, the excise tax applies. on

It applies, but in the text of the rule it then exempts those small businesses. It is in section D of
U.S. Code › Title 26 › Subtitle D › Chapter 43 › – Failure to meet certain group health plan requirements

Notice 2015-17 doesn’t seem to us to specifically say the section of 4980D that exempts small employers from actually paying the fee is no longer valid, it only seems to reiterate that this is not a valid practice. After June 30, 2015, such employers “MAY” be liable for the Code § 4980D excise tax.

To reiterate what is said elsewhere, we are not legal professionals and so this is us doing our best to help point people in the right direction. We suggest anyone reading this double check with a professional. If we were advising a small business we would always suggest using the SHOP.

Belinda Klaes on

Hello. Hello. We are employing 1 person in NY as a Sales Representative. He is 20 and a student at College. This will be our only full time employee at this time. We will slowly expand over the next 6 months to a team of 3. Please advise as to how we can get him basic health coverage. The system seems very confusing. Thank you. on

If you want tax benefits for insuring an employee you should always check out “the SHOP” first and foremost ( . Having a small business and employing a young, and potentially low earning employee, you should also consider not offering health coverage and letting them use the Marketplace so they can claim cost assistance. The tax benefits aren’t as good for you, but they may be better value to them. You shouldn’t offer reimbursement for this coverage as described in this article since you will be having 3 employees, and instead should offer a group health plans (ideally through the shop for tax breaks) or nothing.

Ray Schwabenbauer on

I have three employees and my group policy will cost $5,000 per month and I dont want to deductibles of over $6,000 per year on my employees…..My Health Insurance carrier is pricing us out of the market?? How can I cover my people through AHC…can I pay their premiums? or what else can I do.

Ray Schwabenbauer on

If you only have 3 employees you can elect not to offer coverage and simply offer other forms of compensation. You lose some of the tax breaks, but you allow your employees to choose their own plans on the Marketplace. You can also try looking at the SHOP marketplace and taking advantage of tax breaks that way. It may end up providing good value and will allow you to also fund FSA’s for your employees.

Beth on

I understand that an employer with only ONE employee is exempt from the FINES. Does that mean only ONE NEW YORK employee who wants health coverage (even tho they have another employee in NY)?

And for a charitable organization with only 1 NY employee wanting coverage, I’m still trying to find out if the Employer is allowed to either (1) pay the premium directly to the insurance company on their behalf (for an individual policy purchased thru the Marketplace), or (2) should they instead reimburse the employee for these premiums if the employee makes the payments?

And either way, what are the tax consequences? The employer does not need any deduction as a non-profit corp. Does this need to be reported as taxable income to the employee now –even though it used to be a tax-free benefit??
The employee also kicks in a small % via payroll deduction. How is this now handled, in light of answers to the above?

I have spoken with the insurance company, someone from the Marketplace, a CPA, an insurance broker, and looked online for info. Getting different answers. There is so much confusion and uncertainty! Thank you for any help. on

I would love to give you a definitive answer, but we are confused on how the 1 employee thing works as well. We know it’s specifically excluded from the rule, but don’t know all the details. Perhaps the official instructions on HRA’s from the IRS contains the answer:

Probably best to follow the official guide when in doubt. We will ask around and see if we can get clarification.

And here is the one other official IRS doc.

The DOL stuff clarifies lots, but didn’t catch anything about what to do with one employee.

Sergey on

Dear friends, I didn’t understand the explanation for the statement: “An Employer With 1 Employee is Exempt.” Does it mean that Employer With 1 Employee still can use Health Reimbursement Agreement? Thank you, Sergey. on

It means they are exempt from the tax, it doesn’t necessarily state that they are exempt from the rule.

Also it’s technically written in the document as: An employer who employed an average of at least 2 but not more than 50 employees on business days during the preceding calendar year and who employs at least 2 employees on the first day of the plan year.

Carolyn on

Hello, I have 2 questions: 1) My husband works for a manufacturing/subcontracting company that employs less than 50 full time non-union employees. There are also union employees, who are hired to fulfill installation contracts. When added together, the amount of full time workers is over 100. Union member healthcare premiums are paid by the company directly to the local union hall. Would the company be considered small, since it truly employs less than 50 employees? Or is it viewed as a large company, counting the union members within the company roster?
2) My husband’s employer provided non-union healthcare policy has recently experienced absurd rate increases, which has forced the owners to purchase an HDHP with a $10,000 deductible. My employer offers a more traditional group policy at a much better price. Would it be legal for my husband’s company to reimburse the associated out of pocket premium expenses if he were removed from their policy and added to mine?
Thank you! on

1. Union employees are counted the same as non-union for the purposes of the mandate. So all FTE would be counted. Remember you have to offer coverage, but your employees don’t have to take it.

2. For a Health Reimbursement plan to qualify it must fund a group plan, and not reimburse individual coverage. Not sure that would work given the rules. You can see the guidelines here:

Kim on

For clarity: An employer with 8 employees; and one declined coverage; and employer reimburses him each month for whatever plan he purchased on his own is wrong.

This is what I take from this. Less than 50 employees but more than 2. on

Your assessment is correct. Starting in June of 2015 this is punishable by that crazy big fee. Luckily, as long as this behavior is corrected the employer will most likely simply be exempted from the excise tax. We haven’t heard of the tax being enforced yet, it seems to exist more as a deterrent at the moment. It is also very certainly aimed at large businesses, still the small employer should correct this and offer a group plan or other compensation. The real problem will come if the employer takes a tax break for offering coverage and the employee gets marketplace cost assistance, this is the big “no, no”.

Kim on

I’m also understanding that an employer with atleast one employee but less than $50 is exempt from this rule? Call me confused.. on

Exempt from the excise tax, but not exempt from the rule as far as we can tell. Not 100% sure what the ramifications are, is it that you will be denied the tax break but not fined?

Despite the legal document, the DOL clarifications, and IRS clarifications (all attached to this page) people have been really confused about this (that has included as at times for sure).

Some people who sell health plans continue to swear that it is OK to reimburse for individual coverage, but the .Govs have painted a different picture. I have to say, i’d err on the side of the .Govs as a safe harbor. I.e. i’d take the legal document and DOL clarifications at their word and offer group health plans, not reimburse individual coverage.

Thomas Scott on

Can I pay for employees’ individual plans directly? i.e. not reimburse the employee?

I don’t understand the $100 per day fine rule with regards to the July 15, 2015 date. Can small businesses, less than 50 employees, now be subject to the fine post 07/15/15?

Thank you on

You can’t. This was confusing, but after lots of research it just boils down to they don’t want people double dipping on tax benefits. Ie you can’t get tax benefits for paying for individual coverage, because that coverage may qualify for cost assistance which could be claimed later on 8962 resulting in tax breaks for the employer and tax breaks for the employee on the same dollar. This excise tax is meant to deter that specific thing. The best advice is to simply correct the behavior moving forward if you are not in compliance with the law. There are lots of exemptions for those who are confused.

Tedd on

If company offers a group health plan to all employees and pays the individual premium in that group health plan for its management staff, can an individual negotiate for the company to pay for his/her group health family plan premiums?

Rebecca on

I have 4 employees and offer a small group health plan and pay 100% of the employee cost. But one of my employees doesn’t like the group plan because it doesn’t include his doctor so he has an individual plan and is not on the group plan. I don’t reimburse him for his individual plan and neither my company nor the employee are eligible for any of the tax breaks. Is this allowed or do I have to include him in the group plan? Thank you on

You have to offer him coverage, but he can’t opt-out and thus you don’t have to provide that or any other health related benefit.

You probably need to have someone draw up an opt-out form for you. It’s always best to have an official opt-out on paper so it doesn’t become a sticking point when you go to file.

Seek professional assistance on this one.

Warren Meyer on

Can a small non-profit (501c3) company of 15 employees reimburse employees for their individual monthly medical insurance premiums? on

From what we understand the rule against offering individual coverage is a blanket rule that applies to all businesses. So if our understanding is correct the answer is no. This reasoning is the same for all businesses and is based on the idea that the same coverage shouldn’t be subsidized twice (once in tax breaks to the employer and once in Marketplace subsidies). An employer subsidizing subsidized insurance poses a number of complications.

Ron on

if an employers has 30 F/T Employees and offers health insurance, are they required to meet the 9.5% requirement or get penalized.

can the employee still go to the marketplace and get subsidized ? and the Employer not face penaties on

If an employer offers coverage all the rules apply. So an employee cannot go to the marketplace and get subsidies unless their self-only coverage is above 9.5%.

JD Cleary on

The confusion on this subject is unfortunate. Businesses are still allowed to reimburse employees, taxable or tax-free, for individual health insurance premiums. Recent notices and guidance have confirmed that businesses that offer this type of employee benefit need to ensure the plan complies with all requirements, including new Affordable Care Act “market reforms”. A plan that complies with all requirements won’t be subject to excise tax penalties. Don’t reimburse or give employees money for individual health insurance without completing your due diligence, but it’s certainly doable, and able to be done tax-free so it’s a win for everyone. on

Interesting. Zane benefits (who covers this in crazy detail) and all our research has not shown this. Perhaps you would provide more detail. What we have found is that you must offer a group plan with an HRA unless you have one employee. If you have less than 50 FTE you are exempt from the penalty, but the rule seems to still apply.

You are right though, it is unfortunate that this topic is so obscured, but we always fall back on the IRS and DOL for guidance and they seem to back up what we are saying. Anyone who thinks different it would, i’m sure, help many if you were very clear and detailed on your information and reasoning.

JD Cleary on

The Affordable Care Act hasn’t altered the tax code that allows employer reimbursement of individual health insurance. ACA created new requirements (often referred to as the “market reforms”), effective January 1,2014, for all group health plans.

Guidance over the years, beginning September 2013, has been consistent that employer payment/reimbursement of individual health insurance is considered a group health plan. Since this act is a group health plan, an employer must take care in documenting the plan and specifically how it complies with all group health plan requirements, including the “market reforms”.

IRS/DOL guidance is exactly that, guidance. Guidance that is non-binding and lacking substantial regulatory relevance to an audited employer.

Eric on

I am the sole employee of a small company in Stanton, CA, which is owned by a German company. Since the owner does not reside in the U.S. and I’m the only employee, we cannot have a “group” plan (2-50 employees), so what are my options as far as having my health insurance paid for by the company? on

One-Person Stand-Alone HRA – One-person stand-alone HRAs are exempt from the Market Reforms. (one employee plus business owners for example).

So for ONE employee you can do a stand-alone HRA and reimburse individual coverage, but cannot offer a group plan.

Tom on

We are currently in the 50+ FTE category. We offer insurance to our managers and assistant managers and pay 50% of the premium. By extending this to all employees working 30+ hours it would not be considered affordable if we pay the 50% as it would still be over the 9.5% of the individuals pay.
We cannot afford to cover more than the 50% of the premium. Do I have any recourse?

matt on

My employer (less then 50 employees) offers health benefits through their group plan but it’s way more expensive. They originally said they will reimburse $300 for whatever I decide so for that reason I am considering getting my own individual plan because it’s cheaper. However, can they legally reimburse me if I decide to get my own plan? and how/what forms is needed for them? Also, will they get hit with any fees? on

So you have a few choices. Choice one is pay out of pocket, choice two is get exempt due to cost (, the third is see if your employer offers a non-group health coverage benefit plan. They can legally reimburse you through a payment plan that “doesn’t count as offering health insurance”. Zane benefits offers more direction on that one:

In summary though, they can’t reimburse you for individual coverage and have it count as them “offering you coverage”. Your best bet, if coverage is too expensive is likely looking into the affordability option. Here is another resource on that:

Erin on

I do not have a group insurance plan (less than 50 employees), but I do reimburse certain employees (not all) to buy individual plans. I am having trouble finding guidance on what the ramifications are.

Cynthia on

I work for a company of 22 employees that offers group coverage in California. I prefer to have a different health insurance than what is offered. Can my employer reimburse me for my health insurance premiums which is not the group policy offered by my employer, without my employer being fined or assessed a fee? Thank you on

So your employer con’t offer a reimbursement plan that counts as coverage. But they can offer a “Section 105 Plan” which doesn’t count as offering coverage, but has tax benefits and a similar effect.

Elena Merino on

The IRS has repeatedly stated that employers are prohibited from reimbursing employees for individual health premiums, period, They restated it again in Q&A 2 at An HRA is a 105 plan.

I don’t know what it will take to stop a couple of vendors from promoting this. And, I see you are referring to them for this solution. Calling it a 105 vs a 125 is NOT a work around. Please read Q3 at that specifically mentions 105.

Every major law firm (Alston & Bird, Leavitt and others) that have address this issue have been clear that reimbursement by employers of individual premiums is clearly prohibited, with fines of $100/ee/day.

Please, you are putting a lot of small employers at risk based on the opinion of marketers that are unwilling or unable to provide a legal opinion to back their “workaround,”

barbara on

If a husband and wife own a small business and can no longer qualify for a small business plan as they are the only two employees, they must get an individual plan, is this plan still tax deductible as a business expense?

pam on

Big Broker, Inc. employs 80 full-time individuals and does not offer them employer-sponsored health insurance coverage. If five of its full-time employees enrolled in health insurance through a state exchange and received a premium tax credit in 2016, for what monthly tax penalty, if any, would the company be liable under the PPACA? on

If “BigBroker” has over 50 FTE, which it seems, they will pay $3,000 per employee who got assistance (as it will be less than a flat $2,000 per employee). So $15,000 for five employees.

If an employer owes the fee because they didn’t cover workers, it’s a flat $2,000 per full-time employee (excluding first 30 employees). If only a few end up with unaffordable coverage or if that coverage doesn’t meet minimum value standards, it’s $3,000 per full-time employee who got cost assistance (but, never more than $2,000 per full-time employee). The fee is always per-month, so it’s always 1/12 of those annual totals for each month.

Wunna Aung on

My employer, size of 45 employees, offers a group health plan on which employer contribute $200 toward the monthly premium. Somehow the portion of my pay is high. So I decided to get Obama Health Care plan. Could my company still contribute $200 (Taxable under salary) toward my salary? And would it be compliance with the law? on

An employer can’t contribute to individual coverage unless they structure a specific type of benefit plan that adheres to a number of guidelines. This is explained in the Section 105 part of the page above. Typically if an employer offers a group health plan then this is what they offer. Since you are offered a group health plan you need to meet guidelines yourself to opt out and get tax credits on the marketplace.

Melanie on

My husband and I are 50/50 (>2%) shareholders in our Scorp (with 2 dependents). We recently hired one other 35 hr/wk employee (non-shareholder). As a family of 4, we are currently on an individual health insurance plan. I don’t think we want to offer a group plan to the non-shareholder employee…?

1.) Could the SCorp still reimburse ONE of us ‘shareholder’ employees for our family’s individual premiums, and have no arrangement whatsoever for the non-shareholder employee? (Other than paying higher to allow for them to purchase their own if desired?)
I understand there is ‘transition relief’ for 2015 for >2% shareholders in regards to this… In the past, the Scorp has paid or reimbursed premiums and included that amount as wages on W2s. We then have been able to take line 29 self-employed insurance deduction on 1040. It looks as if that can still be done for 2015, but I certainly want to avoid any ACA compliance and/or IRS penalties, especially moving forward!?

If we did go the establish a ‘group’ plan route… In the past, we have either had a part-time employee exempt from benefits, or the employee opted out of coverage. There used to be participation requirements of 75% of the eligible employees for carriers to cover the group. Is that still the case? Would that third non-shareholder employee HAVE to participate to meet any requirements? Could we offer different plans to different employee types?

I have really tried to research this and mostly am reading ‘until further guidance’ in my situation… Any help is much appreciated! on

I think since you have less than 2 full-time equivalent employees you should be able to offer an HRA.

Raise your hand if you think the group coverage rules for mom and pop size businesses should be simplified. All those in favor say… seriously Washington. Seriously.

Ross Baker on

Hi Andrew,

I think you are recalling the recent news about the definition of a small group insurance plan:

Essentially, without the action taken by congress this fall, group insurance for businesses 50-99 would have been rated as “small group insurance”, and this would have resulted in many businesses seeing an increase in their premiums.

Andrew on

I own a business in Illinois that has 80 employees. I thought that the SHOP marketplace was to expand to 50-100 employee businesses in 2016 but through the website only businesses of 50 and under are allowed to enter. Did I remember correctly and something changed? Or is the website incorrect our out of date? Thanks! on

This is a GREAT question. I almost always know the answer or have insight into an ACA related question. Completely lost on this one. I would call.

Grace on

I run a small business with and partner, we have an Scorp. Our business is seasonal so our 8 employees work 40+ per week for 6 months of the year and 30-35hrs per week for the other six months of the year. We have some employees that are covered under retirement or state health care plans. The other employees have gone to the marketplace and obtained health insurance plans for themselves (some have family coverage).

We have increased the employees hourly wages, so the additional amount is currently subject to all of the regular payroll taxes. We use 50% of their monthly individual plan premium costs (after the subsidy is taken into account) and prorate it to an hourly rate increase. Will this open us up to a risk of penalty? We do not list the increase as a separate payroll item, just an increase in the hourly pay rate. We also are not taking a deduction on the corporate return for health care coverage.

In addition to that, we have two shareholders both greater than 2%. If we did the same thing for our salary, increased it by 50% of our monthly premium, allowed it to be taxed for all applicable payroll taxes, would we be at risk for the penalty?

Since we are only allowing for a 50% reimbursement of the individuals, would the remaining healthcare premium be available for itemized deductions by the employees
? on

A good question, don’t know the answer. Does anybody have the correct answer for this one?

Ross Baker on

Hi Grace,

What can put you out of compliance is if the arrangement you have in place is considered a group health plan by the IRS or DOL. Essentially if you have outlined anywhere that this increase in pay is only available if you show proof you have purchased health insurance, this would constitute a “group health plan”, and your business would be out of compliance. You will also want to be careful of Medical Privacy laws. Howeverm if you are making this an unconditional bump in pay, then there should be no issue.

Tony on

If I’m on Medicare and I have one employee secretary, am I covered by Obamacare or exempt? on

Yeah, if you only have one employee you are exempt from having to offer coverage, you can offer an HRA, and you don’t have to do anything for personal coverage since you have Medicare.

Laura on

I work as the sole employee of my stepfather, who is the sole owner of a S corp. He went on Medicare, and I had to purchase an individual plan as one person couldn’t be in a group plan. I do not qualify for a subsidy due to my income. Can the company set up a HRA to pay or reimburse my health care expenses? Would the payments made to me still be taxable income to my employer? on

Yes, as a sole employee you have lots of flexibility. If there were more employees you would have more restrictions.

David on

So, I am the sole employee of my Professional Corporation, a sub-S. I have an individual, one covered person only health policy, obtained through The Marketplace in Georgia. My PC can continue to pay the premium on my policy, and deduct it as a “business expense” or “fringe benefit”, right?

Matt on

My employer (200ish Employees) offers a group policy and pays 50% of our premium. However even with them paying 50% of my premiums the coverage is still not affordable. I have found looking at other private healthcare options with similar coverage and deductibles including private coverage from the same company as our group plan that it is actually cheaper to get an individual plan even from the same insurance provider. Is it possible for me to opt out of the company group plan and instead choose a single plan from the same provider or other and have continue to cover 50% of that cost instead? This would effectively lower the cost to both of us in premiums. This way they are still providing the group coverage while still supporting myself and the employees financially in finding my own options that fit my needs rather than being “Stuck” using their plan. Because without the 50% match almost all plans become out of our range financially speaking.

LuAnn on

I work for a Sole Proprietor and he has 3 employees on payroll. He does not offer any benefits of any kind or health insurance.
Is this ok for him to do? on

Yeah, doesn’t need to offer anything unless he has over 50 FTE.

Angie Santos on

I have a question, if it is a new company and has 1 employee who is not the owner, how can the Employer offer to pay the employee’s health insurance cost, I’ve asked brokers and they tell me that to start a company plan, there must be at least two employees, Thanks

Eldon Knoploh on

I am a retired employee. My former employer wrote me one check in Jan for health ins. Is this legal under the AFFORTABLE CARE ACT? on

I’m not aware of an ACA specific provision that would dictate what an employer should offer a retiree.

Susan Luchich on

My husband and I are the only employees of the company. The company is an s-corp. We are each W-2. We were able to offer group health insurance through company prior to Obama Care passing. We were on separate plans. I was by myself and he carried our children. We stopped our coverage as my husband went to a job with benefits. We kept the company open and now he is no longer working there so we need to get healthcare again. I’d like to do a group plan through the company again, but I’m hearing that no longer is available for S-Corps with 2 employees who are owners eve if they are w-2. Any insight? We have no desire to get healthcare through any exchange…only OFF exchange only! We want nothing to do withObamaCare

Fr. Stephen on

I am a pastor; my family and I are members of a health share ministry, the costs of which our church reimburses us for. Since it’s not traditional health insurance, and since health share plans are in other way exempt from Obamacare laws…

… is my church liable for this penalty if they continue to reimburse me for this health share plan? on

If you are in one of the approved health sharing ministries you can just take the related exemption. Places of worship also have exemptions from the employer mandate.

So no one would be fined as long as exemptions are in place.

Alexandra on

Goodness, I feel like this article went back and forth on its position RE the legality of small businesses providing Healthcare Reimbursement Plans (HRPs). We are just now hiring 5 temporary employees, one full time, the others varying degrees of part-time. None of their contracts are for longer than 6 months. Based on what we have set aside as fringe and given the time frame of their varying contracts, it really only makes sense to offer two of these employees health insurance benefits. One of these two employees already has individual coverage under the marketplace and she currently qualifies for a subsidy through the marketplace. Upon being hired, she will no longer qualify for the subsidy. All this to say, we would like to offer these two employees a health insurance benefit in the form of an HRP (so we would reimburse them for their premiums). I just don’t think it makes sense to set up an employer group plan (via SHOP) for just six months. But obviously, I don’t want to do anything illegal. Unfortunately, the information presented here seemed to just go back and forth debating whether a small business (with 2-50 employees) could indeed offer reimbursement for individual plan coverage. It would be great if you could confirm whether or not we are able to offer reimbursement for these two employee’s separate individual health plans they obtained from the marketplace. Thanks! on

Ha, you got it. We went back and forth with this FOREVER before reading new updates and talking to ZaneBenefits and settling on an answer. Something about a giant per-employee excise tax that had us being extra cautious.

I would you can offer an HRP if it is structured like Zane suggests, this allows your employees to keep their individual coverage and the others to just buy whatever coverage they choose. There are some less-than-awesome stipulations (like the use-it-or-lose it part), but sounds like the right choice for you.

Jonathan on

Hello- I have a C Corp. with myself and one other FTE. I wish to use company funds to pay for my own/my family’s health insurance premiums and deduct the cost. I do not wish to offer this to my FTE. Is this permitted?

Jonathan on

Generally, yes this is fine. You are a small business so you don’t have rules about who you have to offer coverage to. Just got to make sure you are taking health deductions properly in regards to your filing status.

Bempey on

Small business, less than 15 employees. Employer does not offer group insurance. Employer pays in full for each employee’s individual plan each month.

Employees have received form 1095-A from Covered California. Does employee use this form to do their taxes (even though the employee did not pay for the monthly premiums) or does the employer use the form?

Confused as to how this works.

Thank you. on

The employee will use their 1095-A to help them fill out their 8962 forms. You just have to make sure you are structuring your reimbursement right and do the corresponding paperwork. You have to file a 1095-B as an employer if you don’t offer coverage and have less than 50 FTE.

Peggy Bullard on

We have 7 employees. This year we all went to the Marketplace and got individual plans. Our employer has always paid 100% of our insurance. Our employer gets individual bills for each of us. He has now been told it is illegal to pay for all of these individual plans. Is this true? on

He has to set up the reimbursement plan in a very specific way. In truth, as a small employer, if he gets it wrong he will still avoid a fee (but it could mess up his tax benefits). The best explainer we have is on this page (I know it’s confusing). An example of how to structure the plan is like this:

katelyn on

what do you do if your employer won’t offer you a health plan. on

You can use the Marketplace instead. You may have to have them fill out an “employer coverage tool” for proof, but the Marketplace will request this proof as needed.

Wanda on

For a 1 employee business, can the business reimburse the employee for medical expenses they incurred without having to set up an HRA? This sounds very expensive to do with everything I have read.

julie on

my employer employees 48 people. they offer group insurance for all of them. i have opted out of the group insurance and opted to have medishare (which meets the requirement of having health insurance) will they be penalized for paying this directly to medishare on my behalf? on

The chances of 48 employees equating to 50 full-time equivalent employees (FTE) isn’t zero, but assuming it’s less than 50 FTE then your employer just needs to make sure they structure the benefits in a way that is in compliance with the law. See the section above on section 105 plans.

Tammy Wilson on

I am a large employer. I have (1) employee that is on Medicare and not our Group Plan. We reimburse his Medicare Premiums on a pre-tax basis (will I get penalized the $100 per day). If I am understanding, if I am going to reimburse his premiums, I should be doing so on a post-tax basis so the premiums show as taxable income to the employee. Me, the employer, am not going to get penalized because this (1) employee is the only individual that is not on the group plan. on

Good question. I am actually not sure how the rules for Medicare apply with the excise tax. I only really know it from the angle of the ACA. Let me see if I can find the answer, if someone else knows hopefully they chime in. I would think that reimbursing for medicare post-tax would be the safer bet, but again i’m not personally sure of the answer.

Lauren on

I worked for a company that had a minimum of 2 employees, including myself. I was told that they would cover 55% of the individual plan I had when I initially signed on with them. At the beginning of the year (2016) my insurance went up significantly due to doctors/hospitals in the area not accepting individual plans by certain companies. I made too much to get assistance, but want to know if I was correctly reimbursed as they were just adding the 55% onto my direct deposit and I was actually being taxed so I wasn’t getting the full amount. I just want to know if this was correct and if I was being offered health insurance in the correct manner. There was no benefits department to ask and I am still unsure, I am not even 30 and paying and extremely high rate per month even with the 55% help. I live in the state of Illinois. Any advice would be helpful as I want the benefits that are my legal right.

Ross Baker on

Hi Lauren,

It sounds like your employer is not really offering health benefits, but has just increased your salary. You can talk to them about increasing the amount to account for the taxes that you are currently paying.

Another option is to ask them about setting up a Section 105 reimbursement plan, as described above. This will not only help you save money on taxes, but it will save them payroll taxes, and they will be offering benefits to keep you happy, and use as a recruiting tool when they need to hire others.

Dica on

I’m a sole proprietor and only myself no other employees and I don’t work over 20 hrs and I have insurance through my full time employer. Does my business still have to provide me insurance even though it’s just me, I work less then 20 hours a week and I already have insurance through both my full time employer and my spouse? on

Your business should not be providing you coverage as a self employed person. Rather you should shop the individual market to comply with the individual mandate.

Vivian on

We are company with over 50 employees and offer individual coverage only. Anyone wanting spouse and/or family coverage contributes to that coverage. Is it permissible for a spouse’s employer to pay our corporation directly, not their employee, for the cost of additional family coverage on

I am fairly confident you can’t do this, but I don’t know the answer off the top of my head. If you find out and can confirm please post it here for the next person.

Brian on

I can understand that “double dipping” is the worry about employers paying employee premiums.
What I don’t get is why it’s illegal to pay the premium if the employee doesn’t qualify for any subsidized health care? I offer group health plans to my employees but my younger employees can get a way better health plan on their own. Where my group plan has a $5,000.00 deductible and their’s is only $150.00 at the same cost.

tammy on

can my employer pay a health care premium directly to the health insurance company that is in my spouse’s name that i am covered on? on

So in general no, an insurer can’t take payment from a company for an individual health plan. This is even true if you are self-employed. So individual premiums must be paid by individuals. Individuals though can be reimbursed with a properly structured section 105 payment plan. The basics of that are explained above.

Megan on

I have a group that is cancelling their group insurance they only have 20 employees. They are looking to set up an account with Zane Benefits to reimburse their employees that way instead of having to increase their pay. After everything I have read I am more confused then ever as to if they can do this or if they would face a penalty? on

As it stands now we have no reason to believe Zane is incorrect. We are privately vetting this, but as an independent and private site with no government affiliation we can’t give a definite answer. Zane is confident in what they are doing, but that is as much assurance as I can give. We also found this confusing, but I would imagine at this point someone would say something if everyone was being led down the wrong path since 2014… I mean, I want to believe this is true and more recent guidelines (also on this page) have seemed to confirm it somewhat.

Jim on

I think the scariest issue is that Zane is the only company offering this that I found. I think if it wasn’t risky they would have competition. on

I hear you. I am in the middle of this only by default. My accountant said, “I have no clue what they are talking about”. I have now asked for additional private guidance.

Remember, we are a free online informational blog about the ACA. Zane is a company specializing in group coverage. I want to say that they would be being investigated if they aren’t doing the right thing, and I would also say the ruling on the excise tax allows for leeway for small business to avoid the tax (if say Zane ended up being wrong)… still, I mean, none of this is proof of anything one way or the other. on

Let me put it this way:

FROM THE ARTICLE: Officials from the Treasury Department and the I.R.S. declined to answer questions about the regulations or Zane’s plan, but a Treasury Department official wrote in an emailed statement, “This type of reimbursement plan generally would fail to comply with the A.C.A.’s prohibition on annual dollar limits.”

Eric on

Can an employer with less than 50 employees currently offering group insurance also offer a health credit or cash incentive to employees that decide to move on to an individual medicare plan without a penalty?

What about an employer with 50+ employees?

Jake on

We are a small employer (48) and provide a stipend (paid once a year) included on W-2 post tax, to an employee who does not take our health coverage. They must prove though that they have coverage under another plan. We do not offer anything for an employee who chooses to not take our insurance but is not covered under any other plan. Any issues?

Jim on

Zane Benefits is telling me that they have 4000 clients. We are an employer under 50 FTE. Is it safe to go with their MRP

Joey Sanchez on

Great information. My question is what happens when the carrier reimburses the employee and not the employer. Is the employer still held liable for penalties and qualifications under the ACA rules? on

Not sure, perhaps someone else knows the answer on this one. I’ll leave the question open.

M Grant on

We are a California-based company with 6 employees. Two of them have gold-plated health plans through their spouses, so have declined ours, since we require all employees and owners to pay 10% of their premium; two are on Medicare; one is on a Kaiser “group” plan (used to be 2 until one became Medicare eligible); and one is in the State of Washington. Any recommendations for the best way to cover our Washington state-based employee? (So far it seems like having our company reimburse him for paying his individual premium – along with his other out-of-pocket expenses – is the easiest approach.)

Michael Nichols on

My question is can a employer pay for part-time employees health insurance coverage without a penalty? How would it be deducted by the employer? on

As a general rule of thumb no, but if the plan is structured correctly (as per discussed on this page), then there are some options that could result in contributions to an individual premium (using the somewhat sideways and specific section 105 method found above). It doesn’t matter if an employee is full-time or part-time, the rule against reimbursing coverage doesn’t consider that per-say.

Unfortunately, the overarching takeaway is just not simple. First one must understand the rules of the mandate, then one must understand individual coverage can be reimbursed, then one must understand the debate over section 105 plans (which seems to have ended in them being OK), but this really gets into small business law and steps out of the arena of common knowledge (especially when considering the big fees and technical updates).

Ron on

Question: you state that a small business with 1 employee “is exempt”. Please explain to which provisions of Obamacare this exemption applies. Specifically, does it apply to the $100/day penalty for reimbursing the only employee’s medical insurance premiums?
Thanks for your input. on

The fine print is in the document above.

You don’t need an exemption as far as I know, you simply qualify. This part of the law was updated a few times, so finding “the answer” means reviewing the documents on this page… but the one in this comment is THE RULE.

sam on

my employer pay health allowance every month my pay check with tax.this good or illegal.

Dale on

Since employers with only 1 employee are exempt from the rules about how they set up their employee’s health care (as discussed in above comments), are they also exempt from filing the forms with the IRS (1094-C, 1095-C)?

LP on

What of employers that wish to offer their PT, interns, or company paid temps benefits?
If they don’t meet the min 30 hours/week, but have been working for more than 90days, but less than the measurement period: could they offer these employees benefits? Does it have to be for all? Should they offer an HRP?

Amy on

So, my company offers a group plan, but we have a lot of people who live out of state and the plans they offer don’t work well for those of us out of state. They reimburse those of us who live out of state for 50% of our individual plans each month. I sent them my premium information when the plan started and have been reimbursed each month no problem. The money used to be added into our checks, but 3 months ago they started sending a separate check. We were told they come the 2nd or 3rd week of the month. Last month it was late and I had to ask about it. I was told the woman who handles it had been on vacation so she was behind. This month it was late as well. I just asked about it and was told people not on the group plan are supposed to send an invoice in order to be reimbursed. The invoice triggers the check (even though I’ve never sent in an invoice and always been paid) I asked my co-workers in this state and none of them have ever turned in an invoice and none of them received their checks yet. Are we required by law to send them our bill each month?

Monica L on

So, I’ve been reading all the posts below, looking for a situation similar to mine. I guess each of us has our own dilemma. My family owns an S-Corp (4 FT and 1 at 3/4 time). We’ve been paying 100% health insurance on a group plan (each of us has had to be on our own plan to get to the 75% mark), and we are all “executives” and have invested in our start-up.
We now need to hire two FT non-family employees,as we are growing (painfully) but can’t afford to add 2 more people to that plan. Can we have a separate, less expensive plan for non-executive employees? I understand that we have to offer insurance to them, since the rest of us have coverage, but this would be the only way for us to afford this. Growing is hard!

Diane Collins on

The rules seem complicated and change. I am wondering now if a small employer (under 50) pays for all the group health insurance for only certain employees, does that have to be added to the W-2 because they discriminate and don’t offer it to all employees. I thought that was the case in 2015 but now am finding the insured health plan discrimination rules were not issued yet and may not be until 2017.
I would appreciate your guidance in this area

Kyle on

My now former employer was paying for my individual health coverage on their personal/company credit card for almost 3 years. Is this a violation? Will they be responsible for paying the violation fees? And will I then be responsible for paying back taxes as this would mean my reimbursement was earned income? I do not know if they had a section 105 plan set up, and don’t know how I can find this out. When we opened we had more than 50 employees. This number narrowed over a few years. on

From my readings of the law and updates I wouldn’t think the fee would be incurred (there is an exemption for misunderstanding how the rule works written into the rule). With that said, even just using a business card in your own name as the sole proprietor of your business is grounds to have your payment rejected by the insurer, so certainly it isn’t the right move going forward.

Also remember the mandate is for 50 or more FTE, so if it is only 50 employees I doubt you have to comply with the mandate. In this case there is yet another exemption from the fee for business size.

So i’d be pretty confident there is no fee incurred, but the employer needs to restructure the plan (either going with a group plan or looking into the section 105 options as per discussed on this page.)

David on

Our church employs 2 preachers: myself (full-time) and another man (part-time). I have a subsidized health insurance plan through the marketplace. He (89-years-old) has Medicare and a supplement.

Are either one of us, or both, eligible to have a health reimbursement plan with the church? We have “less than 2” full-time employees, but is that what the IRS allows for with that language? We do not want to be unethical. We just don’t understand the restrictions. on

This is a good question. Less than two employees means say one employee and one business owner, so two employees is not technically less than two. A section 105 workaround as described on the page should work, but I don’t think a traditional reimbursement plan would in this instance. I’ll leave this question open to our readers.

Kyle on

As a part of my compensation package my employer offered to pay 100% of my healthcare coverage. I shopped my own coverage, a BCBSIL PPO. They pay the bill straight out on their credit card every month for almost 3 years, because this is the only way they would allow me to get reimbursed. I am the GM of the establishment. I have 3 other managers below me who are not offered anything, and no other hourly employees are offered any type of plan. When we opened the business we had over 50 employees in 2013, this number has now come below 50 as our production has gone up and there was not a need for so much staff. There was never anything on my paychecks, or anything on my end regarding taxes so I assumed everything was on he up and up. I am no longer with the company, and was doing some research on this matter. Are these people in violation of the law, and responsible for paying the violation fees? If so, am I responsible as well? I am no longer employed with them, and this isn’t the only thing that these people do that are no on the up and up, and I would like to see them held accountable for their actions. What recourse can I take to make sure this happens?

kevin J. on

Is it discriminatory for an employer to only offer insurance to one employee and nobody else? If so is there a penalty or any recourse? At my former job the boss was getting his health insurance reimbursed, but none of the other managers or employees were even offered any.

Patti Harmatz on

I have a PPO plan paid by employer. There are 2 employees (counting me).
I will be going to Medicare next year and I would like to have my company pay my added care- Part D, etc.
Can employer do this?

Laura Kasai on

I am reimbursed for my health care , two thirds of whatever we pick up to three hundred dollars. My employer gives us this on our paychecks as taxable income. He will not cover my premium unless I take the premium tax credit, although when I reconciled for tax purposes I had money deducted from my tax refund to reconcile the tax credit.Is it legal for me to be forced to take the premium tax credit when other employees are not.

Amanda Olesen on

Thanks for this information! We are a nonprofit with 3 FT employees and have been offering a $250 healthy insurance stipend (taxed as income and a line item on pay stubs). We were just told by a payroll service this is non-compliant with ACA. We need a fix. Our understanding is that we begin to offer a group health plan and assist in paying premiums (which we honestly cannot afford) OR offering no healthy plan but bumping salaries up the $3k per year to compensate for the loss of stipend. Are those correct assumptions? Will the latter option raise red flags? OR can we elect to do the Section 105 HRP and be compliant? Thank you! on

Yes offering a group plan is the simple one, but at this point I think its been pretty much confirmed the Section 105 strategy works too (the information we have is posted above).

I would either offer the group plan, get professional assistance on the 105, or just bump up their salary in general and let them use the marketplace. It isn’t a tax benefit to you, but if your FTE’s are making under 400% of the poverty level it’ll likely be a good deal for them. So that is worth considering. You don’t have to worry about the mandate, just the compliance stuff, so you have some flexibility.

SJ on

For a small business in WA state with only one part-time employee, who wants to provide healthcare for that employee, you cannot use the WA health exchange, which requires a minimum of two employees. So we are stuck between a rock and a hard place. According to this site, the law prohibits us from reimbursing for an employee’s coverage, and the WA state exchange prevents us from having a group plan. What should we do? on

That rule only applies to employers with more than 1 employee. I know that is confusing, but long story short it doesn’t affect you. I think the answer is you can reimburse an individual plan.

FBS on

If Zane’s HRP is indeed a compliant solution for employers under 50 FTE, why could an employer not setup the same system for reimbursement internally and still receive the same tax benefits if legally allowed. What exactly are they providing besides information on how to work the loopholes. Seems like they are very clear that they will can not be held liable if the options they are marketing are found to be non-compliant. They claim to have a guarantee, but it’s only limited up to the TPA fees they are collecting for literally just recommending a solution that utilizes loopholes that haven’t been cleared up for smaller employers. Am I missing something here??? What is Zane really offering with the HRP.

Str8Jacket on

Just went through this myself FBS. Here’s what I found. 1) yes, we could have done this themselves BUT, covering all the stuff to do it would cost the biz in the first year more that Zane charges for 5 years. And that’s if congress don’t change the law or if we don’t change our plan. We had an attorney look at all this because we were simply baffled. We did go with Zane but only after spending almost a grand to have a lawyer look at them. Here’s what the lawyer said: “It looks like Zane Benefits is correct. There is no prohibition in the law against reimbursing individual health insurance. Clearly the IRS and the DOL don’t like it however, just because they don’t like it doesn’t make it illegal. The guidance these agencies provided, going back to 2013, clearly shows an agency stance disallowing the practice, but the law does not support that interpretation. There are problems with the guidance the government used to try and regulate this: notices and faq’s do not establish legal precedent, these guidance letters and faq’s the IRS and DOL sent out carry the same legal authority as an email you or I would write, they are weightless. Additionally, they initially stated this position in 2013 but did not follow up with any temporary or proposed regulations. The IRS has a process for turning their official interpretation of the Code into law and they didn’t use it. They stopped at the LOWEST form of guidance. That’s a good indication they doubted their interpretation would align with congressional intent and it would likely be struck down if they had to defend the position.” I’ll add that he advised us pissing off the IRS might not be a great strategy, wrong or not, they’re the IRS but, we decided to do it. There is a couple of congressmen, saw one on TV grilling the IRS commissioner, who have pretty much said that it absolutely was not congresses intention to stop small businesses from helping employees buy health insurance. So, who knows. I can tell you this, our attorney also checked on Zane’s record, see if they had been in any trouble, went back over a decade and could not find one issue with Zane. It’s a hard decision but I kinda feel like the IRS and the others are not on the same page, I don’t know why but, I’ll have to go with my lawyer’s thought. “It ain’t illegal, but the IRS don’t like it.”

Monica on

Thanks for this post. My situation is unusual and I’m having a hard time finding insight into it.

My employer (less than 50 employees) offers a group plan and pays 100% of the premium for full time employees. As their first part time employee, I’m offered the choice of 50% of the premium, or up to about $735 reimbursement for my own two person plan which would be provided as “non-taxable reimbursements as referenced in IRS Publication 15B.”

Would an employer who offers reimbursement like this to one employee be subject to the excise tax?

Additionally, I qualify for a big Premijm Tax Credit through the exchange, which deems my employer plan unaffordable, but can an employer reimburse for the non-subsidized portion of an individual plan?

Thanks for your help!

pam on

Question: A tax exempt non profit with 6 employees. All are covered under spouse’s insurance except one.
Can we offer cash assistance (not full insurance cost) as another benefit to all employees to assist with the cost of their health insurance?

If not, can we offer to pay for the one employees marketplace health insurance?

Erin on

Your company appears to meet the guidelines of a small business is not subject to the Employer Mandate, but are highly encouraged to offer health insurance. You can qualify for tax breaks and tax credits for helping your employee use the SHOP to purchase coverage as well as for contributing to your employees Health Savings Account (HSA) if they chose a qualifying high deductible health plan.

Renee on

We have a company with 10 employees. Three employees have their own individual health insurance that are grandfathered policies. Since they are grandfathered, is the employer allowed to reimburse them for their premiums? The other employees are on a group plan that is not grandfathered.

Ty Webb on

What if our S Corporation is < 50 FTE, offer group Health Insurance, pay for the employee's premiums in full (dependents are paid for the employee) and want to reimburse an out of network employee for their health insurance premiums. Is that allowed?

Would it matter if that employee was in-network?

David on

Is a Township employer with 50+ employees able to reimburse premiums (up to a set amount) if I have waived coverage and I am on my spouses group plan?

Britt on

Hello, I proposed the idea of an HRP to my employer, and I am now researching it further to see if it is feasible. Based on the information I have found on your site and ZaneBenefits, it seems like a good option for our company (3 employees), but we need more information to be sure, as well as to be able to implement the plan. Your articles suggest several times to “seek professional advice,” but it doesn’t specify from whom. Should we contact tax accountants, or insurance brokers? The IRS? Thanks!

Erin on

You will want a tax consultant and preferably one well versed in small businesses self insurance and HRP options. You might also try asking a local Tax Advocate.

Nancy McMahon on

My question is about a not for profit organization with less than 50 employees. They do not offer group health insurance and have the employees obtain their own coverage. Is it OK to reimburse them a up to a specified amount as long as they show proof of coverage? There is no needed tax benefit to the organization and helps the employees whose pay is pretty low.

Chad on

Can an employer with only 4 employees with only one being full time pay an employee a separate check each month for the employee to buy health insurance. Oh and not have any taxes taken out of that payment?

Ann Marie on

I am retired from the state of PA and my husband is currently covered by my healthcare plan. His employer was giving him $21.00/week as he was not taking the healthcare through them. The employer is now saying they will no longer be providing the additional monies as they are prevented from doing this by Obamacare. I think the employer wants to save a couple of bucks and is blaming Obamacare

Erin on

It is true that large employers can’t avoid the Employer Responsibility to offer insurance by providing reimbursement for premiums which are non-group plans. There are some exceptions and employers/employees should consider taking advantage of them if otherwise eligible as there can be tax advantages. You can read more about that here.

Kim on

Can we have up to date info ever! Go google this mess. Articles from 2014 come up.

JR Taylor on

I am a part-time employee at an organization with only one other person who is full time, so I know that we’re exempt. I’m single and purchased my own plan through the Marketplace. Can I ask for reimbursement-type situation?

Erin on

This is an area that has been a little confusing. Many small businesses choose not to use the SHOP and not to provide employer sponsored coverage because they aren’t subject to the Employer Mandate. However, it is possible for small business employers to reimburse employees for premiums on individual market insurance in certain cases. The provisions of the law preventing employers from reimbursing employees for individual marketplace plans is intended to prevent employers from getting tax breaks while employees are getting tax credits for insurance premiums. However, it doesn’t apply to businesses with only 2 employees and small businesses with more than 2 employees can use HRA’s to reimburse for dental and vision coverage through the marketplace (because this is an additional benefit for which adults can’t get premium tax credits to cover). It is also possible for small business employers to reimburse employees for the portion of premiums not covered by Premium Tax Credits. In practice, small businesses get away with reimbursing employees for premiums as much as they want if they aren’t seeking tax breaks for it simply because they aren’t required to file the same tax forms that large employers are when it comes to the ACA. There is more information here and here, with many links to additional information within those pages.

Peggy Ward on

We are a government Public Housing Authority (non Profit) and we have one salaried employee that works 30+ hours (me) and one part-time employee that works 27 hours per week. We have no other employees. When I was hired for Executive Director they board offered to pay my insurance premiums that I have to pay out of pocket. They do not offer any insurance plans to me or the part time employee because they can’t afford it. So I get my insurance on the marketplace. So they are suppose to reimburse me my out of pocket premium. I will pay it, present them the invoice and canceled check showing it was paid and they will pay me back. (It is also not suppose to be included as wages.)

But now I am unsure whether this is allowed or not. I get conflicting information and an accountant is saying that we can’t do this because we have 2 employees and will be penalized. The board is only offering to pay my premiums as an added benefit for me for taking the position. They can’t afford to offer it to the part- time employee. So can we do it like I stated above without getting penalties and in trouble with IRS?

Or can we set up an HRP just for me? With it not being counted as income? If not, how do we need to do this. The extra benefit of them paying my premium is one reason I agreed to take the job. My premium went up over 160.00 per month since I took the job with the higher salary.

Patricia on

I work for an employer with more than 50 employees, and offers a group health plan. They contribute up to $500 per month per employee toward the premiums.
My spouse also works for an employer with more than 50 employees. His employer offers a preferable (to us) health plan, but the employer (not the health insurer) charges a surcharge of $100 per month for spouse’s that have health insurance available through their employer.
Prior to Obamacare, my employer reimbursed me for the surcharge (saving them $400 they would have contributed toward my health plan with them.
They now claim they cannot reimburse me or they face a penalty. I know this may be true for health insurance obtained outside my firm, but is this true for a surcharge charged by my spouse’s employer to join the plan.
If they can reimburse me, where in the statute can I refer them to?
Thank you!

Johnny Trombone on

I’m on my wife’s health insurance plan, and my employer used to pay me a stipend to help with that plan. Then, our company switched over to ADP and replaced the health insurance stipend with something I don’t understand.

Now, instead of my Gross Pay including a $200 health stipend every other pay period, my “Taxes and Deductions” decrease by $200 every other pay period. My take home pay is not affected, because I still bring home that extra $200 every month. But I’m wondering how my employer can do this?

Also, will this setup result in me paying more or fewer taxes at the end of the year? Will I have to pay more federal income taxes because my deduction amount was less throughout the year? Thank you for your help!

Kirk Wetsell on

I understand that a one person business (I am Pastor of a small church) can have a Stand Alone HRA and be reimbursed for premiums used to purchase insurance on the Exchange. Can I do this even though I am getting the Premium Tax Credit or does the reimbursement count against the credit. In other words can I get the PTC and have my share of the policy premium reimbursed tax free? on

That is a great question. I hadn’t asked myself this before (always something one didn’t think about).

My immediate thought is that you can’t pair an HRA with the tax credits, after-all the IRS says: If you enroll in an HRA, you cannot claim a premium tax credit for the months you are enrolled in the HRA.

Yet, they have indeed allowed for an exemption for a single employee (as noted in the article), but while we know this applies to the fee and offering group coverage, I’m not sure how it applies to tax credits.

A logical and fair rule would be, as you say, you could be reimbursed for the portion you owe… but I’m not seeing that. I’m seeing this logic:

An HRA is minimum essential coverage, therefore you aren’t eligible for tax credits if you take an HRA.

If there is an exemption to this I can’t find it.

Finally, to restate the updated article: Employers with less than 2 employees can offer whatever they want. However, offering an HRA seems to count as minimum essential coverage (and thus it can’t be paired with premium tax credits or other marketplace assistance; an HRA can be paired with a marketplace plan, but not with marketplace assistance).

If you find a solution please post it here. I’m sure others would like to know.

Benjamin on

We are a small business that has 6 full time employees. We offer a group plan. One of our employees has a large family, and our group plan is prohibitively expensive for him and his family. However, coverage is quite affordable on a subsidized ACA plan. We can’t ask him to decline our group coverage, because he’d then not be eligible for a subsidy. Can we instead not offer him coverage at all, so that he can go buy an ACA subsidized plan? If so, can we reimburse him for that amount? Thank you in advance…

Suzanne on

My spouse currently gets coverage at work. She can now get onto medical care through her retirement from the state which is much cheaper for us. Her current job would like to reimburse her somehow for her part of the cost as it will save them money too not to have keep he ron the current plan with them.. she is the only employee. Is the only way for them to do it to increase her income..hence now leaving her with even going up a tax bracket due to about six thousand dollars more gross a year? on

Employers with only one employee can still offer an HRA. That is probably the best direction to go. This page isn’t the simplest to go through, but it explains:

Julie on

I paid @ $500/ month for at least 5 years in order to maintain Health Coverage through my employer. I don’t know how much he paid toward my coverage but I never understood why he didn’t have to follow the Affordable Care Act. What I paid to keep my insurance was much more than the 8.5-9 % of my income … it was closer to 35%!
Is there any program in place to recoup some of this money??
I was told be a current employee that the owner was recently fined for not providing Affordable Healthcare. on

If you have to pay that much, you qualify for an exemption.

Alison on

Thanks for the insightful post! It was really great to see all the options for small employers in one spot. I noticed though that you do not mention QSEHRA as an option. It is a specially designed HRA for employers with fewer than 50 full time employees and is designed to work with tax credits. I found this guide to QSEHRA really helpful in learning more about the benefit option for employers. on

I appreciate the insight, I’ve added a link to QSEHRAs for more reading: