A recently posted IRS Q&A raises the specter of serious penalties for non-compliance with the Affordable Care Act. The context of the question relates to the consequences to employers that do not establish a health insurance plan for their own employees, but instead reimburse them for premiums they pay for other health insurance. The IRS relied on its earlier guidance, Notice 2013-54 (See our prior blog entry), and pointed out that these premium reimbursement arrangements (known as “employer payment plans”) raise significant compliance issues under the ACA.

The IRS indicated that after-tax reimbursement arrangements, whereby an employer pays taxable money to employees that they can use for health coverage or any other purpose, are not a problem. However, tax-free reimbursement arrangements could be a problem for the IRS. As if to emphasize the seriousness of this issue, the IRS warned that any arrangement that does not comply with its rules (which are only articulated in Notice 2013-54) could subject an employer to a non-deductible excise tax of $100 per day per employee; or $36,500 per employee per year. The penalties are reportable on IRS Form 8928, which has been updated for ACA penalties.

Interestingly, in other compliance areas, the federal agencies have repeatedly indicated that they are not seeking to penalize employers as they try to come into compliance with the new rules; rather they are trying to encourage compliance. The statement in this new Q&A might signal a shift in attitude, at least on this one issue.