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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