In December, President Obama signed the 21st Century Cures Act (Cures Act) into law – which is good news for small businesses. Under the Cures Act, eligible small employers may adopt health reimbursement arrangements (HRAs) to reimburse employees for the cost of premiums for individual or family health coverage without being subject to group-health plan requirements.
The Need for a “Cure”
Historically, small businesses could provide a health benefit to their employees by reimbursing an employee’s substantiated health insurance premium and medical expenses (excludable from employees’ taxable income), but the Affordable Care Act (ACA) changed that. Although, HRAs generally have been considered to be group health plans for tax purposes, the ACA put restrictions on employer-provided group health plans ruling that “standalone” HRAs didn’t comply with ACA requirements. Those that continued to offer HRA were dealt a steep penalty of $100 per day-per employee – maxing out at $36,500 per employee a year.
A potential expensive cause for concern, most small employers just couldn’t afford to help employees with medical premiums and expenses by keeping their HRAs.
The New HRA Era
With the new act in place, effective for the 2017 tax year, there is an exemption from the ACA penalty for qualified small employer health reimbursements arrangements (QSEHRAs).
To qualify for the exemption QSEHRAs must satisfy the following requirements:
There are some restrictions as to what makes an employee eligible for an HRA. Generally, employees are eligible except if they:
With President-elect Trump taking office later this month there are still many unknowns as it relates to the ACA. During the election, he vowed he would repeal the act – putting the future of the Cures Act in limbo. But for now, businesses should begin to move forward as if ACA will live on.
If you have any questions regarding this new legislation and how it impacts your business, please contact the trusted tax advisors at Doeren Mayhew.
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