21st Century Cures Act Helps Small Businesses Fund Employees’ Health Coverage by Adam Cohen, CPA
Posted on January 26, 2017 by Adam Cohen
In December 2016, President Barack Obama signed into law the 21st Century Cures Act, which, among other things, provides small businesses with an affordable option for reimbursing employees for healthcare expenses without the threat of incurring a tax penalty.
Under the new law, which goes into effect for 2017, businesses that have less than 50 full-time employees and that do not offer group health insurance may create a Health Reimbursement Arrangement (HRA) to help workers pay for medical expenses. More specifically, Title XVIII allows small businesses to set aside pre-tax dollars to reimburse employees and their dependents for medical expenses, including out of pocket insurance premiums, when those expenses comply with the minimum essential coverage requirements of the Affordable Care Act (ACA).
To qualify, employers alone must fund the HRA with contributions that do not exceed $4,950 per year for individual coverage or $10,000 for family coverage. In addition, employers must offer HRAs equally to all eligible employees, although the actual contribution amounts may vary. In all cases, employers must report the benefit amount on employees’ W-2s. Ineligibility to participate in an HRA may occur when an employee is under age 25, when he or she is a seasonal worker, when he or she worked for the business for less than 90 days and when he or she is considered a non-resident alien.
In turn, employees of small businesses hoping to receive tax-free premium reimbursements through an HRA must have minimum essential coverage, as defined by the ACA. In some instances, the employee may not qualify for the Obamacare premium tax credits for self-coverage when the second-lowest Silver plan available on the Healthcare Marketplace is less than one-half of 9.5 percent of the employee’s household income minus the HRA premium contribution.
About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail firstname.lastname@example.org.