Whoops, there goes another kilowatt dam!

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Well, there goes that idea. Oh, not mine. But, a lot of mid-sized entities had the bright idea to provide their employees with tax-free cash to purchase their own insurance on the PPACA Health Exchanges (Obamacare). Now, they won’t be doing that…

Because the IRS (they are the ones who regulate the financial provisions of Obamacare) just announced that employers who do so will face fines. Stiff ones- a tax penalty of $ 100 a day (that’s $ 36,500 a year!) if they do so. The IRS warned that it was not thrilled with the idea last year- but now, it’s absolutely official.

Many employers had thought that this could be a way to save money- by dumping their employees into the federal plans. After all, employer-provided healthcare runs about $ 5,000 a year (for all employers)- and that benefit is not taxable to the employees. (It is deductible to the corporation. But, if one’s effective corporate tax rate is 10%, that still leaves the entity $ 4500 out of pocket. At a 35% tax rate, that would mean $3250 out of pocket.

Now, that does NOT mean an employer can’t forward the employees to the federal health plans. It just means the funds the employer provides for that activity must be taxable- subject to payroll taxes (both the employer and the employee)- plus income tax to the employee.

(One company to watch is Trader Joe’s. This concept was something they were considering for their part-time employees [and maybe more of their staff].)

And, some employers already provide health insurance reimbursements- for the purchase of the plan and/or for out-of-pocket (deductible) costs. These employer payment plans do not satisfy the regulatory demands of Obamacare, however; as such, they will disappear shortly- or leave the employer subject to the same penalties listed above.

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8 thoughts on “Whoops, there goes another kilowatt dam!”

    1. Well, Alessa, I am not exactly positive, but I am sure they did it like one would do a 401(k) or Cafeteria plan. Which meant the US Treasury would be short the social security and medicaid contributions- and that is exactly why the IRS made this determination. The entity can pay for health care as a benefit- and get the taxable deduction (i.e, somewhere between 0 and 35%; probably closer to 15% of the cost of the insurance as a tax reduction)- or provide the funds necessary for the employee to buy the insurance on his/her own- but owes the 15.3% contribution to employer taxes (and employee portion, as well).
      (To be honest, this latter portion costs them just a little more money- since they are deducting the cost of the insurance [as before, albeit at a potentially lower rate than they paid]- which means about 15% of the premium will be reduced from their taxes- and the employer portion of the payroll taxes.

      1. I’m sure there is a lot of creative thinking going on with the bigger corps. I bet as soon as one course of action is taken the rules will change again!
        Carolina HeartStringshttps://www.adjuvancy.com/wordpress/index.php?social_controller=auth&social_action=authorize&key=facebook&post_id=16313 recently posted..WORDLESS WEDNESDAY

        1. Actually, most of the bigger companies already have health care plans that are going to involve taxation for their recipients. Those entities, Alessa, are examining ways to reduce the tax bite the excessive benefits may entail.

    1. I think the real issue here was that companies were looking for ways to put their obligations onto us. That seems to be the new American way, Suerae- pawn your obligations onto the American taxpayer and then declare how much profits you have that you should be allowed to keep more…

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