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Bills To Cancel Obamacare Small Business Tax Threat

by Mike Godfrey, Tax-News.com, Washington

09 July 2015


Bipartisan bills have been introduced in both the House of Representatives and the Senate to abolish the tax liability of up to USD36,500 a year per employee that US small businesses could face under the Affordable Care Act (ACA) for continuing with health reimbursement agreements (HRAs).

HRAs provide that an employee is responsible for paying for insurance or other medical needs themselves and the cost is then repaid by their employer. HRAs are not considered to provide the ACA's "minimum essential" health care coverage, as they are regarded as lacking the unlimited requirements of an ACA group plan.

Despite the fact that small businesses with fewer than 50 full-time employees are not subject to the ACA's "employer mandate" (a penalty tax on larger companies that do not provide sufficient group health insurance coverage for their employees), the Internal Revenue Service (IRS) announced that small businesses continuing with HRAs would suffer an excise tax of USD100 per day for each employee not covered.

At the same time as an IRS notice in February this year waived the tax until July 1, 2105, the agency reiterated that those small businesses that had not changed their health insurance arrangements by that date would be penalized.

In response, Chuck Grassley (R – Iowa) and Heidi Heitkamp (D – North Dakota) in the Senate, and Charles Boustany (R – Louisiana) and Mike Thompson (D – California) in the House, have introduced a bipartisan companion bill – the Small Business Healthcare Relief Act – to cancel the tax.

The proposed bill would ensure that small businesses with fewer than 50 employees are allowed to continue using pre-tax dollars to give employees a defined contribution for healthcare expenses; allow employees to use HRA funds to purchase health coverage on the individual market, as well as for qualified out-of-pocket medical expenses if the employee has qualified health coverage; and protect employers from being penalized for providing an HRA option to employees.

"I've heard from farmers, small-business owners and accountants who are worried about getting hit with a penalty for something they've done for a long time without any controversy," Grassley said in a statement. "It doesn't make sense to tell small employers they can't help their employees get health insurance. Why disrupt something that worked?"

According to National Federation of Independent Business (NFIB) research, 14 percent of small businesses that do not offer group insurance still reimburse their workers' costs instead. Its Director of Legislative Affairs Kevin Kuhlman had previously called the excise tax on small businesses "the biggest penalty that no one is talking about," and pointed to it as "enough to destroy most small businesses."

Speaking about the recently introduced bills, he added: "If there's an opportunity for a bipartisan improvement toward affordable healthcare, this has to be it. There's no real justification for penalizing small businesses that do what the law's strongest supporters claim to want, which is to help employees obtain coverage or pay medical bills. This is a rigid and thoughtless bureaucratic rule that undermines the purpose of the law, and it ought to be repealed immediately."

TAGS: tax | small business | business | law | insurance | employees | excise duty | Internal Revenue Service (IRS) | health care | legislation | United States | penalties | Healthcare | Healthcare

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