IRS Issues ACA Excise Tax Relief to Small Businesses

Small business owners shocked to learn of the Affordable Care Act’s steep $100 per day per employee excise tax for those without insurance can breathe a little easier—for now. The IRS announced Wednesday that it will provide relief from the penalty through the end of FY2015.

The welcome news came after small business groups voiced concern about the severity of the tax and the adverse impact it could have on businesses that provide payments or reimbursements to employees for health policy premiums or Medicare Part B or Part D premiums. When the Department of Labor and the IRS issued conflicting instructions on how to handle the penalty, pressure continued to mount.

The excise tax relief applies to businesses that are not “Applicable Large Employers” (at least 50 full-time employees), S corporation 2% shareholders, and plans that reimburse Medicare as described above. This means that for 2014 and 2015, we can continue to treat health insurance plans for 2% S corporation shareholders the same as always (include the information on the W-2 and deduct it on page 1 of form 1040).

While this transition relief can only be seen as good news, it should be noted that the IRS has emphasized it is only temporary and will expire on June 30, 2015. Employers with fewer than 50 employees and who have implemented health reimbursement arrangements (HRAs) will be subject to the excise taxes starting July 1, 2015.

In its announcement, the tax collection service remains firm in its position that these plans do not satisfy the intended market reforms of the Affordable Care Act, and that they may eventually be subject to the $100 per day per employee penalty.

With regard to S corporations specifically, the IRS said:

“The IRS is contemplating further guidance with respect to 2-percent employee-shareholders of S corporations. Until such guidance is issued (and in any event through the end of 2015), the excise tax under Code Sec. 4980D will not be asserted for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement, and an S corporation with a 2-percent shareholder-employee healthcare arrangement will not be required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans) solely as a result of having a 2-percent shareholder-employee healthcare arrangement.”