New IRS Guidance on Paying Employee’s Individual Insurance Premiums for Small Employers

The Internal Revenue Service issued Notice 2015-17 granting tax transition relief for non-Applicable Large Employers (small employers with fewer than 50 full-time or full-time-equivalent employees) who reimburse or pay the premium for an employee’s individual health plan.

The IRS will not impose excise taxes for these employers who reimbursed or paid premiums for individuals in 2014 through June 30, 2015. Beginning July 1, 2015, these employers may be liable for the tax.

The IRS has emphasized repeatedly that paying or reimbursing employee individual insurance premiums violates the Affordable Care Act’s annual dollar limits and preventive services mandates.

This new guidance also includes relief provisions for certain employees of S corporations, Medicare premium reimbursement arrangements, and TRICARE-related reimbursement arrangements. See the notice for more details.

Employers in this situation should consult their insurance broker or benefits legal counsel on appropriate action.