Fines for Fringe Benefits
Marcia Zarley Taylor DTN Executive Editor
Thu Jan 15, 2015 10:45 AM CST
(Page 1 of 3)

HADDONFIELD, N.J. (DTN) -- What really annoys farm wife and part-time farm employee Julie Taylor is that while leading agricultural CPA firms now advise clients to avoid $36,500-per-year-per-employee fines under the Affordable Care Act (ACA), she hasn't heard a peep from the U.S. government on what constitutes the infraction. There's little clear guidance on the Internet, and much confusing and conflicting information from professional tax advisers, attorneys and fringe-benefit plan administrators in farm country.

Under Obamacare, Julie Taylor and husband Brian have spent countless hours trying to find an affordable health care solution for themselves and the farm's only full-time employee, son Justin. ACA regulations greatly restrict reimbursement arrangements when employers do not provide group health insurance, although there is an exemption for single-employee coverage. (Photo courtesy of Julie Taylor)

DTN/The Progressive Farmer alone has received more than two dozen inquiries on this topic in the last few days. Readers range from farmers to CPAs from Kansas, Nebraska, Missouri, Michigan, Minnesota, Tennessee and West Virginia.

"The government knows I'm running a business just by looking at our tax filings," Taylor said of the Stockbridge, Mich., farm partnership her husband runs with his brother. The third-generation farm employs Julie part-time and her 25-year-old son Justin full-time. But until recently, Julie wasn't aware that ACA greatly restricted businesses of any size from offering to reimburse employees for health insurance premiums instead of company-provided health coverage. The rule applies to 2014 policies; IRS first alerted professionals in September 2013, then clarified its decision in November 2014 Department of Labor guidance.

"I consult a CPA, but not weekly. How is a small business owner supposed to keep up if they publish guidelines in November retroactive to the beginning of the year?" Taylor asked. She was scrambling this week trying to work with her advisers to come up with affordable and compliant health care policies.

CORRECT 2014 W-2s

CPAs are urging farm business owners to pay attention to that recent memo by the Department of Labor and IRS before they finish employee W-2s for 2014. Failure to comply with new interpretations on reimbursement of employee health care costs could trigger penalties of $100 per day per employee under ACA, a harsh sentence for small business.

"This penalty is so severe that it is important that any employer carefully consider whether their present medical reimbursements violate ACA," said Andy Biebl, a CPA and principal with CliftonLarsonAllen LLP in Minneapolis, one of the nation's top 10 accounting firms. (Biebl first addressed this topic in September 2013 in his DTN column and in a special January 2014 webinar, but see… for his latest guidance).

All health care plans beginning on or after Jan. 1, 2014, are affected, but employers who correct their error within 30 days of learning of the issue should be able to avoid penalties, Biebl added.


What may shock many farm businesses is that they likely aren't able to give employees the helping hands they have in the past- -even when their employees are family members.

Mom-and-pop businesses with fewer than 50 full-time employees aren't required to offer group health care coverage under ACA. However, many farms have long made contributions by simply reimbursing employees' individual health insurance premiums and/or medical costs on a pre-tax basis. Commonly, that's administered through Sec. 105 Health Reimbursement Arrangements (HRAs). Another less formal option is for the business to reimburse a flat amount of employee health insurance premiums under what's known as Sec. 106. Some employers will wrap these two fringes into Sec. 125 cafeteria plans, using employee pre-tax salary reductions to fund the benefit.

These arrangements have been popular throughout farm country because they offered tax-free fringe benefits for employees, their spouses and dependents, Biebl added. "Unfortunately, that employer generosity is now illegal under the ACA market reforms."

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