So let’s face it, nothing about taxes is exciting. But we also need to face the facts that ignoring changes can be costly! So under the Patient Protection and Affordable Care Act (PPACA), there are provisions that provide for an excise tax under Sec. 4980D if employee benefits do not comply with market reform rules.
That excise tax is $100 per day, per affected participant. Notice 2013-54 issued guidance to employers concerning a several types of health benefit arrangements provided to employees. One fairly common benefit that we have seen with our customers is the tax free reimbursement to an employee of individually purchased health insurance (Rev. Rul. 61-146).
Notice 2013-54 also makes it clear that this arrangement would not comply with market reform rules and to continue that practice would make the church subject to the excise tax. As of January 1, 2014 only group health insurance policies offered by the employer will qualify for the tax free benefit. If you cannot include an employee under the church’s group health insurance policy, then you could continue to provide reimbursement to the employee for an individually purchased policy but the amount would need to be included in the employee’s W-2 as a taxable benefit.
If you have an allowance for the reimbursement that is on the employee’s file, it must be considered Taxable by Federal/Social Security/Medicare/State/Local. Fun stuff? Not for a minute. Something you shouldn’t ignore? Absolutely!