Follow Randy Linkedin Facebook
Email Randy Email
Financial
Jan 14, 2014

New Tax Rules If You Reimburse Your Employees for Health Care Cost

Sponsored Content provided by Randy McIntyre - Partner, McIntyre, Paradis, Wood & Co.

Among the many changes the Affordable Care Act is making in the health insurance market, one of the most overlooked is a potentially big problem for small businesses. This change affects many companies that fall well under the 50-employee minimum for required group insurance.

It’s been very common for these smallest businesses, which may have just a handful of employees, to help out those employees with a subsidy for their health insurance. Instead of setting up a group insurance plan, these employers have made a tax-free payment meant to help their workers pay the premiums on their individual policies.

Historically, this was a common and popular practice for businesses that didn’t provide group health insurance.

Unfortunately, as of Jan. 1, 2014, it’s no longer possible.

Under the federal Public Health Service Act, as amended by the Affordable Care Act, these tax-free reimbursements aren’t permitted any more. That doesn’t mean an employer can’t still subsidize employees’ health-insurance premiums. But those payments must now be considered as compensation. And that means they are now taxable, and subject to withholding.

Getting this wrong can be very, very costly.

Code Section 4980D is one of those obscure parts of the federal tax code you’ve never heard of. But it’s something it’s my job to know about. It says you could pay hefty penalties if you don’t comply with the new law. If you reimburse employees for their individual health insurance premiums, and don’t add that reimbursement to their taxable wages, you could be subject to a penalty of up to $100. Per day. Per employee.

I’ll say this again: $100 every day, for every employee. This means potentially paying $36,500 a year for everybody on your payroll.

Now that I’ve gotten your attention, and given you a scare, let me tell you the good news. Yes, if you keep making these payments, and comply with the law, it could cost your employees a bit more in taxes. But since they’ll still be in the private insurance market, they could well qualify for a federal subsidy through the new insurance exchange. Whether they can claim their insurance premiums as deductions will still depend, as it always has, on whether they itemize on their Form 1040, and whether their total health-care expenses exceed a certain percentage of their income.

For you as an employer, because these payments are now considered compensation, they are deductible as a normal business expense. The most important thing for you to do now is to make sure your payroll processing system is set up to handle this correctly, for all wages or salaries earned after Dec. 31, 2013.

Please consider everything I’ve said here to be general information, and not a substitute for the advice your own accountant should give you. Remember that every business’s circumstances are unique. So ask your accountant or tax adviser about the specific steps you may need to take to comply with this new requirement.

My goal is to give my clients and the public useful information, explained in plain English, about their finances and taxes. If you have a question you’d like me to answer in a future article, please let me know.

Randy McIntyre is a Certified Public Accountant and a partner in McIntyre, Paradis, Wood & Company, CPAs. He has worked in public accounting since 1977, in Wilmington since 1992. His firm is built on a history of service, technical expertise, and innovative to provide the expertise of larger firms with a personal, one-on-one approach. To learn more about McIntyre, Paradis, Wood & Company, see www.mpwcpas.com. He can be reached at  [email protected] or 910-793-1181.

Ico insights

INSIGHTS

SPONSORS' CONTENT
Nancywoolleyadultliteracyprogramdirectoratcflc

What Is Your New Year’s Resolution?

Nancy Woolley - Cape Fear Literacy Council
Drewsmith copiersplus headshot

How To Navigate A Copier Buyout

Drew Smith - Copiers Plus
Mike stonestreet 300x300

8 Questions To Ask When Choosing A Professional Community Management Company

Mike Stonestreet - CAMS (Community Association Management Services)

Trending News

Area Restaurants Announce Temporary Closures

Jessica Maurer - Jan 13, 2021

Developer Revisits The Avenue’s Phases

Cece Nunn - Jan 12, 2021

Tomsic Assumes New Position With Dogwood State Bank

Jenny Callison - Jan 13, 2021

More COVID-19 Vaccine Doses Arrive, Providers Added To Administer Shots

Vicky Janowski - Jan 13, 2021

Las Margaritas Bar Y Grill Opens On New Centre Drive

Jessica Maurer - Jan 13, 2021

In The Current Issue

Top 10 Most-read Stories Of 2020

The most-read stories of 2020 run the gamut from filming in Wilmington to some of the latest news about Port City-based firm Next Glass....


Bike Shop Owner Rides To Success

Since she left the corporate world less than 10 years ago, Diane Hodapp has been on a roll....


2021 Goals: New Year's Outlook In Their Own Words

Several of the region’s economic development groups and organizations that are economic drivers check in with a recap of what happened in th...

Book On Business

The 2020 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2020 Health Care Heroes
2020 WilmingtonBiz 100