Quietly and with no comment from the public, the Internal Revenue Service has amended tax rules to penalize small businesses that set up Health Reimbursement Accounts (HRAs) to use pretax dollars to help workers afford health insurance.
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Experts say IRS fines could total $36,500 per year, per employee.
Setting up and funding such accounts has been a longstanding practice among many small employers that typically cannot fund human resources departments and healthcare insurance. The money in the account is paid pre-tax by the employer. But this week, the IRS will no longer allow companies, even ones that are below the 50-employee minimum which are not required to have healthcare, to offer such programs.
Kevin Kuhlman, the policy director for the National Federation of Independent Businesses, has said the programs were popular with small businesses that wanted to retain and encourage workers. Roughly one in seven small businesses that don’t offer insurance on their own utilize HRAs, according to a NFIB survey. Kuhlman described the IRS’ motivation in ending the practice as “philosophical. It doesn’t fit into a regulatory box.”
What’s more, requiring businesses to make contributions in after tax dollars will likely end the programs, he said. The IRS has yet to respond to the FOX Business Network’s request for information.
The rule change is facing scrutiny in Congress where two bills would re-write the IRS rule to allow HRAs.