Bipartisan Cures Act permits certain small business HRAs

President Obama signed into law the 21st Century Cures Act (HR 34) on December 13. The Senate on December 7 passed the bill by a 94-to-5 vote. The bill passed in the House on November 30 by a 392-to-26 vote.

The measure allows certain small businesses to use qualified small business Health Reimbursement Accounts (HRAs) without Patient Protection Affordable Care Act (PPACA) (P.L. 111-148)-related penalties. Certain limits to the accounts would apply, including an annual cap of $4,950 per year ($10,000 for families).

The new law comes after the IRS announced in Notice 2013-54, IRB 2013-40, 287, (see PAYROLL MANAGEMENT GUIDE Report Letter 2322, dated September 24, 2013) that it would generally treat these arrangements as employer payment plans. Therefore, they are considered to be group health plans subject to the PPACA’s market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Failure to comply with the PPACA’s market reforms triggers excise taxes under Code Sec. 4980D. The excise tax reaches $100-per-affected-individual per day. In Notice 2015-17, IRB 2015-14, 845, the IRS provided transition relief from the penalties but the relief expired after June 30, 2015.

Under the newly enacted law, the HRA requirements for qualified small businesses would apply to years beginning after December 31, 2016. Further, transition language provides that the relief under Notice 2015-17 will be treated as applying to any plan year beginning on or before December 31, 2016.

W-2 reporting

Not later than 90 days before the beginning of a year in which an employer will fund a qualified small employer HRA (QSEHRA) (or, if later, the date on which an employee becomes eligible for the QSEHRA), the employer must provide eligible employees with a written notice containing the amount of the employee’s permitted benefit and certain other information. An employer that fails to provide the notice may be subject to a tax penalty of $50 per employee, subject to a maximum of $2,500 for the year.

In addition, the employer must report an employee’s permitted benefit for a year on the employee’s Form W-2 for the year. An eligible employee who applies for advance premium assistance with respect to Exchange coverage for a year must provide the Exchange with the amount of his or her permitted benefit for the year, effective for calendar years beginning after December 31, 2016. (Tax-Related Portion of the 21st Century Cures Act, Enrolled, as Signed by the President on December 13, 2016, HR 34.)

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