Minding Ag's Business

Give Small Biz a Break on Fringe Benefits

There are few milestone pieces of legislation that alter American life, but the 2010 Affordable Care Act is one of them. With mandates for individual coverage and no lifetime insurance limits, for example, it's brought more security to cancer patients like myself who would have wracked up $660,000 in medical expenses last year if I hadn't been insured. For that I'm grateful, because the bills worried me more than the diagnosis. (I'm in the clear now, thanks.)

Just because I support the concept of universal health care coverage doesn't mean I can ignore the need for technical corrections in a law that runs thousands of pages and has generated countless Federal Register notices. For example, IRS's definition of who is a "large" employer runs more than six pages. It's a lot to absorb for farm businesses with just a handful of employees--many of them family members.

One critical downside is that many small business owners must redesign their benefits packages, sometimes in major ways. Too many have falsely believed that there's nothing in the ACA that applies to them, since businesses with fewer than 50 full-time employees are exempt from the mandate to offer employee health insurance that is ACA-compliant.

As DTN Tax Columnist Andy Biebl and I first reported in 2013 and again this month, the act saves some of its stiffest penalties for businesses that don't offer group coverage but attempt to rectify the situation by reimbursing employees for their health insurance premiums, doctor bills and prescriptions.

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Except for some narrow exclusions, these so called stand-alone Health Reimbursement Accounts (HRAs) have been outlawed by the IRS's interpretation of the law. Penalties of $100/day/employee apply starting with 2014 health insurance policies, or $36,500/year. All size businesses from Mom and Pop to Exxon are included, and it doesn't matter if the reimbursements are pre- or post-tax.

Contrast that with penalties for Exxon-sized companies that fail to provide their employees legitimate health insurance coverage. That penalty runs only $2,000 per employee/year--or $3,000 if the employee buys a tax-subsidized policy on a federal or state exchange.

Insurance agents and fringe benefit administrators are tracking a bill that died in the last session of Congress but might be revived this year. The "Small Business Healthcare Relief Act of 2014"(H. R. 5860) would have allowed employers employing 49 or fewer employees to establish a stand-alone HRA for purposes of reimbursing health premium and medical expenses of their employees and dependents. In addition, the bill would allow use of pre-tax dollars for employees purchasing policies in the individual market. Further, these types of arrangements would be exempt from the ACA’s mandates applicable to group health plans.

Perhaps someone will listen to reason. In the meantime, one of my Minnesota farmer friends is dismantling his HRA and hoping IRS doesn't audit him.

For more details see "Fines for Fringe Benefits" on the Farm Business page http://www.dtnprogressivefarmer.com/…

Follow me on Twitter@MarciaZTaylor

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