By Chuck Randolph
Yes, however the reimbursement is no longer tax-free income to the employee and is now taxable to the employer.
Under this type arrangement referred to as an employer payment plan, an employer reimburses an employee’s substantiated health insurance premiums for non‐employer sponsored medical insurance up to a maximum dollar amount. Prior to 2014, these arrangements were allowed under IRS Revenue Ruling 60‐146. However, under the Affordable Care Act (ACA) these arrangements are no longer allowed. IRS Notice 2013‐54 issued September 13, 2013 now defines these plans as “group health plans” and therefore become subject to the ACA rules.
These reimbursement plans will not satisfy the ACA provisions for minimum essential coverage, prohibition on annual limits and preventative care. Any health insurance plans which do not satisfy ACA provisions are subject to an excise tax penalty of $100 per day per employee for each day of non‐compliance.
Therefore, beginning in 2014, if any employer wishes to reimburse its employees for health insurance, the amount of reimbursement will be considered taxable wages to the employee and subject to normal federal income tax, social security and Medicare taxes. The employer must pay the matching social security and Medicare taxes on these wages.