No Kidding: This Week IRS starts Punishing Businesses for Helping Workers Buy Insurance

Date: June 29, 2015

Jack Mozloom, 202-406-4450 or 609-462-5610 (cell)

NFIB urges quick repeal of schizophrenic IRS rule imposing fines on small businesses for helping defray the cost of their workers’ insurance or medical expenses

Washington, DC (June 29, 2015) – An obscure IRS rule takes effect on Wednesday under which small businesses that get caught helping their workers buy insurance or pay medical bills can be fined 18 times more than larger employers that don’t provide coverage at all, warned the National Federation of Independent Business (NFIB) today.  

“It’s the biggest penalty that no one is talking about,” said NFIB Policy Director Kevin Kuhlman.  “The penalty for compensating employees for healthcare-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.

“It’s hard to believe Congress or the President intended to punish employers much more severely for actually helping their workers,” said Kuhlman.  “Nevertheless, that’s the consequence and most small businesses don’t know it.”

In fact, according to NFIB research 14 percent of small businesses that don’t offer group insurance reimburse their workers instead.  They think they’re doing a good thing but they’re walking into a minefield. 

“Reimbursing employees for the cost of insurance or medical services is a way for small businesses to help their workers without the administrative headache of setting up a costly group plan,” said Kuhlman.  “Most small employers don’t have HR departments or benefits specialists, so this is a simpler, easier way to help their employees.”

Congress could remedy the situation by repealing the IRS rule.  There is legislation in both houses awaiting action (S. 1697/H.R. 2911).  

“If there’s an opportunity for a bipartisan improvement toward affordable healthcare, this has to be it,” said Kuhlman.  “There’s no real justification for penalizing small businesses that do what the law’s strongest supporters claim to want, which is to help employees obtain coverage or pay medical bills.  This is a rigid and thoughtless bureaucratic rule that undermines the purpose of the law, and it ought to be repealed immediately.”

Related Content: Press Release | Healthcare | National

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