Small Business ACA IRS Healthcare Penalty

Date: July 26, 2016 Last Edit: August 23, 2016


On November 30, 2016, the House of Representatives passed H.R. 34, the 21st Century Cures Act. The Small Business Healthcare Relief Act was contained within the 21st Century Cures Act in Section 18001.  On December 6, 2016, the Senate passed the bill. The legislation is supported by the White House.
On June 21, 2016, the House of Representatives unanimously passed bipartisan legislation, H.R. 5447, the Small Business Healthcare Relief Act, which would protect small businesses from the catastrophic Internal Revenue Service (IRS) penalties and would provide much-needed flexibility for small business owners to assist their employees with health insurance premiums and healthcare expenses. 


Small business owners with fewer than 50 employees were repeatedly told that Obamacare would not affect their business. These businesses are experiencing increases in health insurance costs and a decrease in health insurance benefit flexibility.
All businesses, regardless of business size, could be penalized by Obamacare for helping their employees purchase health insurance on their own. In the past, business owners who did not offer group health insurance were able to directly pay for or reimburse their employees tax-free for individual health insurance policies. The IRS prohibited these reimbursement arrangements on July 1, 2015.
Employers now face penalties of $100 per day, per employee if they try to make health insurance more affordable by directly paying or reimbursing their employees for individual market health insurance premiums or medical expenses. The penalty affects businesses that assist more than one employee. The healthcare reimbursement prohibition regulation decreases an employer’s ability to assist employees with health insurance costs. If your business is negatively impacted by this penalty, please share your story with us now.

  • In September 2013, the IRS issued a regulation prohibiting employer payment plans, which applies to certain types of benefit arrangements including: health reimbursement arrangements (HRAs), flexible spending arrangements (FSAs) and certain other employer healthcare arrangements, where an employer directly pays or reimburses an employee for some or all of the premium expenses incurred for an individual market health insurance policy. 
  • An employer payment plan is considered a group health plan that will fail to comply with the market reforms that apply to group health plans under Obamacare, according to the IRS.
Who is affected?
  • All sizes of businesses are negatively affected by the reimbursement prohibition regulation if they try to make health insurance more affordable for their employees by reimbursing more than one of their employees’ purchase of individual health insurance policies.
  • This includes businesses that have fewer than 50 employees.
What is the Penalty?
  • Beginning on July 1, 2015, a business that reimburses more than one of their employees’ individual health insurance policies will be penalized $100 per day per employee ($36,500 per year per employee), up to $500,000.
NFIB Action
  • NFIB is fighting to protect business owners from this egregious penalty and is working to reinstate flexibility in benefit offerings.


Watch NFIB’s Kevin Kuhlman explain the reimbursement penalty on Fox Business >>

Subscribe For Free News And Tips

Enter your email to get FREE small business insights. Learn more

Get to know NFIB

NFIB is a member-driven organization advocating on behalf of small and independent businesses nationwide.

Learn More

Or call us today

© 2001 - 2024 National Federation of Independent Business. All Rights Reserved. Terms and Conditions | Privacy