Great news for smaller employers that want to help their employees purchase health insurance, but can’t afford a group plan. On December 13, 2016, the “21st Century Cures Act” was signed into law. The law, besides speeding up drug and innovative treatments, allows small employers to once again provide health insurance reimbursements to their employees by using a Health Reimbursement Arrangement (HRA) account.
To qualify the employer must have to have fewer than 50 employees and provide the benefit to all employees on a non-discriminatory basis. The reimbursements are not includable in the employee’s gross income and are deductible to the employer. This law is effective for tax years beginning after December 31, 2016, however, it is possible to get relief from tax penalties for tax years prior to December 31, 2016.
There are requirements that need to be followed to be compliant and you will need an external provider to manage the HRA. Below are a few examples of items that need to be considered before implementing a HRA.
- The annual limit an employer can contribute to a Health Reimbursement Account (“HRA”) is $4,950 for a single person and $10,000 for a family.
- Providing employees with funds in the HRA can affect the eligibility to receive Premium Tax Credits depending on the amount provided to the employee.
- Certain amounts that are reimbursed may require W-2 reporting and subject to FICA taxes.
Caution: Using an HRA, you will now be able to reimburse employees for health insurance premiums without including the amount as compensation. However, without one, any health insurance reimbursement will be considered compensation and will need to be reported on the employee’s W-2.
For more information regarding the requirements and the benefits, or to consider setting up an HRA for your company, please contact Laura Ring, Director of Tax Services.