The Goodness of Their Heart – The True Cost of Making Benefit Payments on Behalf of Your Employees

I have been speaking with a great number of small business owners who have looked at the exchange as an alternative vehicle for providing health care for their employees.  Because their employees are eligible for subsidies, employers have requested that they sign up for coverage and have agreed to pay the cost of the coverage.  Since January, they have been writing checks to providers to pay their employees’ premiums. 

The problem is, by doing this, business owners and their employees can get into serious trouble.  Not just pay the fine and walk away trouble, serious trouble.  In reality, this payment is considered employee compensation.  Payroll taxes, from the employer and the employee are required to be paid.  For the employer, failure to pay payroll taxes can become criminal. 

What should you do?  The amount paid to the exchange is taxable income for the employee. You must add it to the income the employee receives and taxes must be withheld.  Some employers gross up the number so the total compensation paid to the employee minus their taxes due equals the amount the employer pays to the exchange on their behalf.  In addition, the employer must pay their portion of taxes due,  social security, disablilty, etc.

In addition to interest, penalties are assessed on delinquent taxes.  Better to pay the money when due.