Employer Reimbursements Are Clarified by IRS Letters

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The treatment of employer reimbursements under the Affordable Care Act was addressed by the Internal Revenue Service in information letters released for the last three months of 2014.

Reimbursement of employees by employers for medical expenses and the exclusion of such reimbursements from workers' wages under tax code Section 105 are considered to be group health plans and must satisfy market rules enacted under the health-care law, the IRS said in INFO 2014-0037.

Employer reimbursement of employees' premiums for individual health insurance policies may be excluded from workers' gross income under Section 106, even if the employer pays the premiums directly to the insurance company, because the reimbursement arrangement is treated as a group health plan, the agency said in INFO 2014-39.

However, employers that do not provide group health coverage but want to help employees with the purchase of health coverage can provide the employee additional compensation, the IRS said. The additional pay is not excluded from income because it is not restricted to the payment of medical expenses, it said.

The letters provide general statements of law without applying them to a specific set of facts. They are furnished by the IRS national office and released Dec. 26 for the three-month period ended Dec. 31. The IRS considers information letters to be advisory, with no binding effect.