Employer Dumping Leads To New IRS Rules

In lieu of offering health insurance benefits, certain employers have been paying employees to purchase their own individual insurance through the Marketplace exchanges. The rub is that employers have deducted these amounts as a cost of doing business the same way they deducted funds used to pay premiums.

The IRS has now moved to block this practice, colloquially dubbed “employer dumping.” Harsh tax penalties to the tune of $100 per day or $36,500 per year can now be assessed to employers. This new penalty in no way offsets other penalties that can be assessed under the Affordable Care Act.

“Employer payment plans,” as they’re sometimes called, do not satisfy the requirements of offering a health insurance plan, which must include preventive care. If employers choose to pay employees more to purchase their own health insurance, the amount must be treated as taxable income.