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Posted on July 15, 2015
by matt

IRS Rule Reminder on $100 Penalty

Last week, the penalties for non-compliance with the IRS rule on standalone HRAs went into effect. If you remember from February, the Administration slightly backtracked on their long-standing policy, pre-dating the PPACA, forbidding standalone HRAs as a vehicle for employers to provide health insurance to their employees. While they did not reverse the policy itself, they did decide to give a temporary grace period for small employers who were already offering insurance through this set-up and delay the enforcement of penalties until July (that guidance is availablehere). Now July is here and the penalties are in full force.The Administration has repeatedly declared these arrangements to be non-compliant, but agreed to give a temporary transition period given an ongoing misperception that there were some legal loopholes within the law that permitted them. The IRS repeatedly squashed these rumors, but in a measure of good faith with small employers, who may have set up these plans with misinformation, provided a period for them to transition to compliant plans.

The penalties are charged on a per-employee, per-violation, per-day basis and add up very quickly, at $100 each. This means that an annual penalty for just one employee could reach an astounding $36,500. Multiple that by a few employees and employers could find themselves quickly in the hole.

Legislation is currently pending in both the House and the Senate that would remove this prohibition and allow employers to use standalone HRAs to fund employee healthcare. H.R. 2911 is offered by Representatives Charles Boustany (R-LA) and Mike Thompson (D-CA), and S. 1697 is offered by Senators Chuck Grassley (R-IA) and Heidi Heitkamp (D-ND). NAHU opposes this legislation, and has consistently sided with the Administrations position that standalone HRAs are in violation of the law and undermine the existing employer-based healthcare system.

Source Credit:IRS Rule Reminder on $100 Penalty

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