An IRS rule that recently took effect stipulating that small businesses that are caught helping their workers buy insurance or pay medical bills can be fined $100 per day, per employee, is raising ire from industry watchers.
“It’s the biggest penalty that no one is talking about,” National Federation of Independent Business Policy Director Kevin Kuhlman
said in a news release. “The penalty for compensating employees for health care-related expenses is enough to destroy most small businesses.”
Under the rule, which appears nowhere in the Affordable Care Act, employers who do not offer a group health plan but give their workers additional pay to compensate for the purchase of health insurance or direct medical expenses can be fined $100 per day, per employee. Over the course of a year, that’s $36,500 per employee up to $500,000 in total. The penalty on businesses for failing to comply with the employer mandate is only $2,000 per year.
Congress could remedy the situation by repealing the IRS rule. There is legislation, HR 2911, the Small Business Healthcare Relief Act of 2015, awaiting action.
The IRS did not return phone calls or emails from the American Media Institute seeking comment.
Staci Wilson, director of state government affairs with the Illinois State Chamber of Commerce, also supports HR 2911.
“We are supporting HR 2911. It’s bipartisan and allows small employers to help employees to purchase health insurance. We believe in choice and flexibility, and this legislation is a way help those small businesses to do this.”
American University Professor Don Williamson, executive director of the Kogod Tax Policy Center, said, “It’s not a penalty, it’s an excise tax. It will be hard for small businesses to meet the rule.”
Williamson postulated the IRS wants all employers, including small businesses, to offer insurance to its employees just as large corporations do. “You can have a policy that you’re reimbursing for, and that would be fine, but you've got to pay the penalty. The IRS has even already specified the form, IRS Form 8929.”
Williamson said the real trick will be enforcement, knowing when an employer violates the rule.
“How would it be enforced? How would the IRS know if a business was violating the rule? That’s the question," he said. "Presumably, in the self-insurance context, the workers on their taxes would declare they have employee coverage, so the worker would indicate that, then through matching (employer and employee records) the IRS would see the insurance provided, and they would then have to investigate the quality of the coverage. The intent is to push employers into offering insurance to their employees, and, if not, the IRS wants to drive employees into the health care exchanges.”