IRS Clarifies Rule on Individual or Exchange Coverage for Employees

May 30, 2014
Author: Webmaster
Posted In General

  IRS Clarifies Rule on Individual or Exchange Coverage for Employees  

On May 16, 2014, the Internal Revenue Service (IRS) issued an FAQ response to clarify whether employers can provide added compensation to employees, so they may purchase individual health coverage.

The IRS FAQ answer says it is illegal for an employer that does not establish health coverage for employees to simply pay for individual coverage through a qualified health plan or a state marketplace (or the federal marketplace). It is also illegal for an employer to provide added cash compensation to an employee to pay for individual coverage. 

An employer that takes part in such an arrangement will be subject to an excise tax of $100 per day or $36,500 per year per employee.

You can link to the full IRS FAQ here.

Please be sure to share this information with your clients if they are considering a move to individual coverage rather than renewing or purchasing group coverage.
 

Please note: This notice is about Pre-Tax dollars. If employers want to help employees pay their individual policy premiums, it generally must be on an AFTER-TAX basis.

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