Penalty relief for employer health insurance reimbursement arrangements

Small business owners will be relieved to know that on February 18 the IRS issued Notice 2015-17, providing limited relief from the draconian $100 per day per participant penalties under IRC ยง4980D for health insurance reimbursement plans that had been addressed in Notice 2013-54. In particular, the notice provides:

  • Transition relief for employers that are not applicable large employers (employers with 50 or more employees). Relief is granted for 2014 and for January 1 through June 30, 2015; and
  • Relief for S corporations that pay for or reimburse premiums for individual health insurance coverage for 2% shareholders as addressed in Notice 2008-1. The relief period is indefinite and the IRS states that taxpayers may continue to rely on Notice 2008-1 "unless and until additional guidance" is provided.

While the transition relief is good news for small businesses, employers need to remember that as of June 30, 2015 they will be required to include any reimbursements for health insurance in their employees' taxable income unless the reimbursement is to a 2% or more shareholder of the company.