IRS regulations will fine small businesses that reimburse employees for healthcare costs

A new Internal Revenue Service regulation will fine small businesses that reimburse employees for their healthcare coverage instead of providing a health insurance plan.

The new excise tax, which went into effect on July 1, could cost business owners $100 per day per improperly covered employee, up to $36,500 per year. The penalties come after the IRS granted businesses 18 months to make their health insurance benefits compliant with the Affordable Care Act. Opponents say many businesses may not be aware that they're still in violation of the law.

“It's the biggest penalty that no one is talking about,” wrote National Federation of Independent Business Policy Director Kevin Kuhlman in a statement. “The penalty for compensating employees for healthcare-related expenses is enough to destroy most small businesses.”

The new IRS regulation is 18 times greater than the $2,000 employer-mandate penalty in place under the ACA. Unlike the employer mandate penalty, the new rule does not exempt employers with fewer than 50 workers from fines.

Legislation has been introduced in both the House and Senate to allow small businesses to use pre-tax dollars to assist employees in purchasing health insurance policies.