As an early Christmas present to small employers, President Obama signed the 21st Century Cures Act. Starting January 1, 2017, the Act allows employers with fewer than the equivalent of 50 full-time employees to reimburse employees for purchasing individual health insurance as if it were directly paying premiums on a group health policy.

With a health reimbursement arrangement (HRA), the employee won’t have to pay taxes on the company’s premium contribution, and the company won’t owe payroll taxes on the amount contributed. An HRA for small employers is now classified as a qualified plan under Affordable Care Act. Therefore, employers that choose to use HRA’s won’t be penalized $100 per day per employee (or $36,500 per year) for not offering plans that provide for “minimum essential coverage,” which is the keystone of the Affordable Care Act.

To qualify, the small employer must not offer group health insurance to any employees, and the employer must make the reimbursement available on the same terms to all employees. The amounts may vary based on the employee’s age and family size, two factors that are used to determine cost of plans under the Affordable Care Act. The amount of payments and reimbursements under the plan for any year cannot exceed $4,950 for individual insurance and $10,000 for family coverage.

The HRA must be funded solely by an eligible employer, and there can be no salary reduction contributions under this arrangement.

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Greg Kenworthy
I am a partner at Hawkins Ash CPAs, focusing on the accounting and tax needs of privately held businesses and individuals. This includes tax return preparation, review, tax planning, research and financial statement compilation and review. Prior to and during my time at Hawkins Ash CPAs, I served two tours of duty with the Army in Iraq.

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