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Gone! 21st Century Cures Act Impacts IRS Regulations

Posted by Admin Posted on Feb 15 2017

Doctor holding piggy bank

Now, small employers are allowed to offer health reimbursement arrangements (HRAs) to reimburse employees for health insurance and other medical expenses without penalty.

The 21st Century Cures Act, signed by President Barack Obama, took effect on January 1, 2017. It allows for Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) for reimbursing employees for health insurance premiums.

To qualify, an eligible small employer must employ less than 50 full-time employees, including full-time equivalents. The employer and arrangement must also meet the following criteria:

  • Employer must not offer group health insurance to any of its employees
  • Arrangement must be funded solely by the eligible employer; no salary reduction contributions may be made under the arrangement
  • The amount of payments and reimbursements for any year do not exceed $4,950 for individuals, $10,000 for families in the case of an arrangement that provides reimbursement for family coverage (with amounts to be adjusted for inflation)
  • Employer must offer HRA benefits on the same terms to all eligible employees, with certain exclusions (e.g., part-time and seasonal employees)

In 2013, the IRS imposed a penalty of $100 per day against employers who directly paid or reimbursed their employee’s health insurance premiums. The reason was that HRA employee reimbursement for individual health insurance policies violated the terms of the Patient Protection and Affordable Care Act (PPACA).

With this IRS regulation gone, HRAs are now an option. Small employers can create HRA health plan opportunities for their employees, creating benefits that have the potential to be a win for both.  

If you consider offering QSEHRAs to employees, they must be properly set up. Donovan & Limroth can assist you with the setup and provide you with sample plans and employee notification documents. When tax season comes around, you will avoid the worry and the rush to make sure your records are in order.

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