The 21st Century Cures Act, which was signed into law December 13 primarily to fund medical research, also included provisions that allow small employers to provide Health Reimbursement Arrangements (HRAs) to employees. This means that for tax years beginning after December 31, 2016, small employers may establish a plan to reimburse employees for out-of-pocket medical expenses and/or health insurance premiums. These reimbursements are deductible to the small employer, but generally are not taxable to employees.
A “Qualified Small Employer HRA” must meet the following requirements:
- Employer must employ fewer than 50 full-time employees.
- Employer may not offer a group health plan to any of its employees.
- Reimbursements must be made on the same terms for all employees (though employees under age 25, part-time or seasonal, under a collective bargaining agreement or employees with fewer than 90 days of service may be excluded).
- Must be funded by the employer (no salary reduction contributions).
- Employees must provide proof of health insurance coverage in order to be eligible to participate.
- Reimbursement plans for individuals may not exceed $4,950 per year, while plans allowing for reimbursement for all family members are capped at $10,000. This amount will be subject to annual cost-of-living adjustments. For arrangements in force for less than a 12-month period, these amounts are prorated.
In order to participate in an HRA, employers must provide notice to employees explaining the employees’ permitted benefits under the arrangement and the employees’ responsibility to maintain minimum essential healthcare coverage. Verbiage also must include information for employees applying for tax credits on any governmental health exchange. This employee notice is due 90 days before the beginning of the plan year, but due to the timing of the passage 100c of the Act, this has been extended to March 13, 2017, for this year only.
Please contact us if you would like us to assist you in determining whether a Health Reimbursement Arrangement is right for your business or organization.