The Obamacare Penalty No One Is Talking About

Date: July 10, 2015

An IRS penalty that kicked in on July 1 will fine business owners for reimbursing employees on healthcare costs.

Under Obamacare, individuals face a penalty for not buying health insurance. But now even small businesses that choose to jump through hoops to help workers pay for healthcare costs could face penalties. 

A new IRS regulation that went into effect on July 1 could impose a fine of $100 a day per worker—up to $36,500—for businesses that provide tax-free assistance with workers’ individual health insurance premiums or medical costs. The regulation would cost businesses over 18 times more than the Obamacare penalty for larger businesses not providing health insurance for employees, which is $2,000, said Kevin Kuhlman, NFIB Director of Legislative Affairs, in a conversation with radio host Frank Beckmann on WJR in Detroit.

According to NFIB research, one in seven non-offering small businesses have these policies in place—and the IRS regulation could mean cost increases for hundreds of thousands of workers.

“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,” Kuhlman said in an NFIB press release. “This is a rigid and thoughtless bureaucratic rule that undermines the purpose of the law, and it ought to be repealed immediately.”

The penalty even kicks in for businesses with fewer than 50 employees who are exempt from being required to establish group plans under Obamacare. Small businesses with too few resources to set up group healthcare plans could still face insurmountable fines for providing for their workers’ well-being. 

“The penalty for compensating employees for healthcare-related expenses is enough to destroy most small businesses,” Kuhlman said. “Reimbursing employees for the cost of insurance or medical services is a way for small businesses to help their workers, without the administrative headaches of setting up a costly group plan.”

There are currently two bills awaiting congressional action to remedy the problem.

“If there’s an opportunity for a bipartisan improvement toward affordable healthcare, this has to be it,” said Kuhlman, who was quoted in a press release put out by Iowa Sen. Chuck Grassley that was picked up by the River Cities’ Reader.

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