Question: I have a very small business (s-corp): 2 employees (myself + full-time employee). The employee currently has a subsidized plan under covered california. I would like to help pay for the employee's health care, but it seems like the employee would lose their subsidy if I did so. When getting quotes I saw that even if I paid 65% of the premium (of the employees current plan), the employees would still be losing over $100/month. Is there any way I can contribute via a cafeteria plan (IRS 125) or similar and they can keep their individual plan? Basically, some way I can contribute that will maintain their subsidy eligibility but not increase their taxable income. Note: my employee is full time and earns > $18/hour. I am covered by my spouse.
Answer: A Health Reimbursement Arrangement (HRA) would allow the employer to reimburse premium and/or out-of-pocket medical, dental, and/or vision expenses up to $4,950 for employee-only coverage and $10,000 for family coverage. Employer contributions under an HRA are pre-tax to the employee so wouldn't increase their reportable income. Employees participating in a small business HRA can access the ACA premium tax credit, but the amount of the credit will be reduced dollar for dollar by the HRA amount, so the employee can't double dip.