Can An Employer Run Individual Policies Through Section 125? – USE YOUR OWN JUDGEMENT
In an IRS revenue release in 2007 the IRS announced clarity allowing employers to run Individual Policies through a Section 125 or Section 105 HRA for purposes of premium payment. With the signature of “ACA” the new law outlines the exclusion of Section 125 plan for state run exchanges or individual plans purchased through a state run or federal marketplace effective Jan. 1st, 2014.
Many TPA’s, tax attorneys, and CPA’s have been asking for clarification on this subject which is expected sometime soon. In our research many document creation companies are allowing this feature in the documents adopted by the employer, however amendments can be made up until Dec. 31st on a retroactive basis. This means if you are a small employer who drops coverage and allows employees the ability to deduct premium saving both employee and employer if the IRS clarifies ability for those policies purchased off exchange there is a potential an employer may be required to reverse tax treatment for employer taxes and income tax purposes by year end.
There are many articles that state more clear cut opinions that state NO individual plans can be run through Section 125 POP plans. There are other articles or companies that have a strong position that the IRS is already clear enough to deduct premiums as long as they ARE NOT purchased through a federal or state run exchange.
Another item is clear is that an employer CAN NOT have a stand alone HRA after Jan. 1st, 2014. Also clearly private exchanges that are employer sponsored and state or federal run SHOP marketplace could be included. Please click this link for an article we feel does a great job outlining the details of the release and ability for use of these special tax favored treatment.
There are many companies promoting HRA’s, PRA’s and ability to utilize a Section 125 plan for individual premiums but our recommendation would be to use extreme caution until further guidance is released. The release of this information is expected sometime this year.