Big Penalties for Small Biz ‘Unintended Consequence’

Small business groups are sounding the alarm about an obscure IRS rule that excessively fines small businesses.

The rule, an apparent unintended consequence of the Affordable Care Act, penalizes employers who do not offer employees a group health plan but give them additional pay to compensate for the purchase of health insurance or cover direct medical expenses.

The rule took effect July 1. The IRS can penalize employers $100 each day for every employee. The penalty for each employee caps at $36,500 a year. In contrast, the penalty on businesses for failing to comply with the employer mandate is $2,000 per year.

“It’s hard to believe Congress or the President intended to punish employers much more severely for actually helping their workers,” said Kevin Kuhlman, policy director for the National Federation of Independent Business. “Nevertheless, that’s the consequence, and most small businesses don’t know it.”

Legislation has been introduced in both houses to repeal the rule and is awaiting further action. S