Feds To Impose Penalties On Small Business


A little known rule that will impose penalties on small businesses for “not meeting the required group coverage plans that provide health care assistance to employees through the use of traditional HRA accounts” went into effect July 1.  The delay in the implementation of the rule came from a delay at the U.S. Treasury Department in the enforcement of the technical guidance issued in September 2013 for health reimbursement arrangements (HRA).

This means fines will start being imposed on small businesses not meeting those requirements.  The IRS rule mandates that small businesses that help their employees buy individual insurance or pay medical bills directly can be fined.  The reason for this fine is that, if the employer pays these costs, the IRS considers the organization to be operating a group health plan.  Since these reimbursements are not for a qualified group health plan under the ACA, they may be subject to a fine.

The fine averages about $100 per day, per employee. At the end of the year, those fines can add up to $36,500 per employee, or $500,000 total.  The fee applies to organizations whether they offered their employees before-tax or after-tax assistance.  The fine does NOT apply to employers who contribute towards the cost of a qualified group health plan.

Specifically, the rule applies to employers with more than one employee participating in an employer health care or coverage pay arrangement. Employers can exclude workers who:

  • Have less than three years of employment at the company
  • Are under the age of 25
  • Are part-time or seasonal workers

Given the few exemptions, it comes as little surprise that the $100/day fine then applies to all other employees covered by the payment arrangement. S Corporations, though, are exempt from this rule through the end of 2015.

Please contact your L&A Services representative with any questions.


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