Employer Reimbursement of Health Insurance Premiums

By Kenneth H. Bridges, CPA, PFS     August 2014

It is well-known that an employer can provide health insurance benefits to its employees tax-free under a group plan.  It has also long been the rule of tax law that an employer can reimburse an employee for the employee’s purchase of individual health insurance and exclude the reimbursement from the employee’s W-2 income.  However, this may now subject the employer to a steep excise tax.

In connection with the implementation of the Affordable Care Act, the IRS has ruled that an employer’s reimbursement of an employee’s individually-owned health insurance policy premiums on a tax-free basis will result in a plan that does not satisfy the market reforms for group health plans, and therefore could mean an excise tax of $100 per day per employee for the employer.

Employers should consult with a health insurance professional to ensure that your plan is in compliance with the provisions of the Affordable Care Act.

Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP an Atlanta-based CPA firm.

This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice.  The article provides only a very general summary of complex rules.  For advice on how these rules may apply to your specific situation, contact a professional tax advisor.