Is there a Tax Deduction for Employer Paid
Individual Medical Coverage?

IRS Notice 2013-54 Can't reimburse for Individual Plans
IRS Notice 2013-54 Can’t reimburse for Individual Plans

What about just having the employees go on their own, now that they can get Covered CA subsidies and it’s all guaranteed issue?  

Can employers give cash bonus to employees who waive coverage?

Health Care Reform requires that coverage must be under a GROUP health plan, not employer reimbursements or individual plansIRS Notice 2013-54 ♦ IRS §9831Attorney Explanation   The ACA has a $100/day penalty for doing individual plans rather than a group plan  Forbes 6.30.2015 ♦ Fox News 7.1.2015 ♦ 6.16.2015  ♦  IRS Notice 2015-17   

On the other hand  

the 21st Century Cures Act, will let small businesses use health reimbursement arrangements (HRAs) to fund employees who purchase individual health plans on the open market.  This legislation incorporates key elements of the Small Business Healthcare Relief Act, H.R. 2911  and creates a new type of HRA—the qualified small employer health reimbursement arrangement (QSEHRA). The legislation specifies that:

The maximum reimbursement for health expenses that small employers can provide through employee QSEHRAs is $4,950 for single coverage and $10,000 for family coverage, to be adjusted annually for inflation.

Small employers that choose to provide QSEHRAs must offer them to all full-time employees except those who have not yet completed 90 days of service, are under 25 years of age, or who are covered by a collective bargaining agreement for accident and health benefits. Part-time and seasonal workers may also be excluded.

Generally, an employer must make the same QSEHRA contributions for all eligible employees. However, amounts may vary based on the price of an insurance policy in the relevant individual health insurance market, which in turn can be based on the age of the employee and eligible family members, or the number of family members covered.

Employees who decline coverage may not be given back cash.   Letting employees choose between insurance and cash makes all insurance contributions taxable, unless you have established a Section 125 cafeteria plan.    However, newer information says OK, but it’s taxable


How about getting a quote for a GROUP plan and then just paying a set amount – contribution for each employee?

Just let us know the amount you want to contribute, the number – percent of employees that will participate and we can verify if one of our  Insurance Companies will take the deal.

Please note also, that under a Group Plan, the amount that employees pay for theirs and dependents premium is tax deductible when the employer sets up a Section §125 plan.

Just give the employees a taxable raise.

Check out  Individual & Family Health Care Reform Tax Credit – Subsidy  but employees won’t qualify if they have an affordable Employer plan 9.5% of employee only premium – available.

More on Employer’s Deduction

Tax Facts Employer Deduction – Password Protected  –  Subscription Service
Email us to review any other  questions you might have.


Main Tax Credit, Section 106, Child and Related Pages

Employer required paperwork to be given to Employees & Government Our Webpage

2 comments on “IRC §106 FAQ’s – Individual Plan Reimbursement?

  1. We recently added 2 salaried employees. Since one of the employees was already covered by their spouse’s plan, we just increased both of their salaries by their cost of individual coverage rather than get a formal plan.

    Can we do this?

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