California employers falsely believed that they could shift health costs to the government by sending their employees to a health insurance exchange (with a tax-free contribution of cash to help pay premiums). However, the Obama administration has objected to this procedure. “Such arrangements do not satisfy the health care law”, the administration stated. Employers may will be subjected to a tax penalty of $100 a day — or $36,500 a year — for each employee who goes into the individual marketplace.
The Internal Revenue Service (IRS) issued a FAQ response to clarify whether employers can provide added compensation to employees, so they may purchase individual health coverage. You can read the full IRS FAQ here.
The IRS FAQ states that it is illegal for an employer who does not establish health coverage for employees to pay for individual coverage through a qualified health plan or a state marketplace (or the federal marketplace). It is also illegal for an employer to provide added cash compensation to an employee so that they may pay for individual coverage.
As stated above, an employer who takes part in such an arrangement will still be subject to an excise tax of $100 per day or $36,500 per year per employee.
Please note, if employers want to help employees pay their individual policy premiums, it generally must be on done on an AFTER-TAX basis.
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