Popular among small employers was an arrangement by which they would pay the employee’s individual insurance plan premiums on a pre-tax basis. Market reforms within our new healthcare law now prohibit this.
Starting January 1, 2014, employers who reimburse or pay premiums directly to a carrier for any employee’s individual or family health insurance policy will no longer be able to do so tax-free. This may adversely affect both employer and employee.
If you are an employer and currently have such an arrangement (or aren’t sure), STOP and call your CPA, financial advisor or legal counsel immediately. If you are an employee, contact your employer to share your concerns and look for alternative ways to receive your benefit. Note: The same does not apply to an employer-sponsored group health plan.
To pay employee individual plan premiums legally, the employer must gross up the amount for payroll taxes and add it to the employee’s earnings. Better still, a question for employers: Why not discontinue this reimbursement arrangement and increase wages to enable employees to pay for individual health insurance coverage with personal funds.