IRS Announces Delay on HRA Penalties

February 25, 2015

pic-health-cost-blueLast week, the Internal Revenue Service announced a delay in the enforcement of penalties on companies that continue to provide Health Reimbursement Accounts (HRAs)—now banned by the Affordable Care Act (ACA)—to their employees. Fines and penalties will not be imposed until this summer.

The HRAs have long given small businesses a tax-free vehicle for contributing cash toward their employees’ individual health insurance premiums. The tool has been an important way for employers to defray the costs of health insurance, even when the employer is not able to provide a group policy. However, the ACA has banned these contributions since 2013, under the theory that the HRAs represent tax-free “double-dipping.” Treasury officials point out that the HRAs are a tax preference on health premiums that are also eligible for individual tax credits and subsidies.

Many small businesses haven’t gotten the message and have continued to make HRA contributions to help their employees afford health coverage. Once again proving that “no good deed goes unpunished,” these employers could be subject to fines totally $100 per day per employee if the HRA contributions to help their employees continue. Given the situation, the delay of fines and penalties is a big help to these small businesses, but it clearly is not the ultimate fix.