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IRS penalizes employer health reimbursements

July 8, 2016

nfib-logoBy NFIB,

A bill permitting small business owners to reimburse workers for the cost of health insurance should pass the House with bipartisan support, said the National Federation of Independent Business (NFIB).

“Congress could not have intended for small business owners to be punished severely for trying to help workers get coverage,” said NFIB President and CEO Juanita Duggan. “The IRS has reached far beyond congressional intent and we are urging members in both parties to support the Small Business Healthcare Relief Act.”

Last July the IRS announced a new penalty on employers who reimburse their workers for the cost of health care or medical visits. Neither the penalty nor the reason for it appears anywhere in Affordable Care Act. Nevertheless, employers who run afoul of the new rule face fines of $100 per day, per worker. That amounts to $36,500 a year, which is 18 times bigger than the penalty imposed on larger employers that don’t offer insurance to their workers.

“That’s completely upside down,” said Duggan. “Small businesses that help workers purchase insurance are penalized more heavily than larger companies that don’t provide any insurance.”

Under a measure (H.R. 5447) set for a vote in the House tonight, small business owners would be allowed without penalty to compensate employees for the cost of individual insurance or medical visits. NFIB, which called national attention to the IRS penalty last year, strongly supports the legislation.

“According to our own research, nearly 1 in 6 small employers were providing this compensation last year,” she said. “The government should not bankrupt an employer just because they want to contribute to an employee’s health care. There is absolutely no evidence that Congress wanted to ban this common practice. We’re grateful for the action of the Ways and Means Committee and hope that the bill proceeds promptly to the House floor.”

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