New Bill Eliminates Penalties on Reimbursements for Health Insurance

Both the House and the Senate, with approval from Obama, have recently passed legislation (21st Century Cures Act) that would eliminate the penalty on employers who reimburse employees for qualified medical expenses, including health insurance premiums. 

The IRS began enforcing a penalty last year and employers could have been fined up to $100 per day per employee, or up to $36,500 a year for reimbursing employees for health insurance premiums or other qualified medical expenses as this was deemed to be in violation of the ACA. 

Under this new legislation, an employer is eligible to establish a small employer health reimbursement plan if that employer is not subject to the employer mandate under the Affordable Care Act (i.e., less than 50 full time employees) and does not offer a group health plan to any employees. The maximum reimbursement that can be provided under the plan is $4,950 or $10,000 if the plan provided for family members of the employee. Both these amounts will change with inflation. 

Although many farmers may have already gone through the hassle of adjusting employee wages to compensate for lost reimbursement plans or underwent some policy or other changes within their farming entities to stay compliant with the ACA, this is a big win for small employers. The most difficult part may be having conversations with employees explaining why decreasing wages and having the health reimbursement plan is better overall for them.

Special thanks to David Enquist for the post today.


  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives a combine each summer for his cousins and that is what he considers a vacation.


Question: When will this new law become effective? Hoping it can be utilzed for 2016 and we can issue a reimbursement. We are an S-Corp and ceased all reimbursements due to not having a Group plan.

It starts January 1, 2017. However, S corporation owners can still be reimbursed for health insurance. That has not changed.

Wow leave it to politicians to come up with a bill that at first blush is a positive but the reality is that the amounts aren’t based on real life! For example the premium for a bronze HSA plan in Skagit county is north of $12000 per year for a family of 3. It is going up by 30% for 2017. And the HSA contribution is peanuts compared to real costs….

I agree, but at least it is a step in right direction and eliminates the risk of the $100 per day penalty.

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