Looking for a tax gem to save money on medical expenses? Discover the 105-HRA (Section 105 Health Reimbursement Arrangement).
If you meet the qualification criteria, this plan can provide the best medical reimbursement.
To be eligible for the 105-HRA, you must have only one employee and operate your business as one of the following:
-Proprietorship reporting on Schedule C of IRS Form 1040
-Partnership filing IRS Form 1065
-Real estate rental business rising to the level of a business and reporting on Schedule E of Form 1040
-Farm business reporting on Schedule F of Form 1040
-C corporation filing IRS Form 1120
Mr. Reagan reimburses his employee-spouse $22,000 for medical expenses. With the 105-HRA, Mr. Reagan, who falls into the 25 percent federal tax bracket, 15.3 percent self-employment tax bracket, and 8 percent state tax bracket, saves $10,626 in taxes this year and potentially similar amounts every year.
The 105-HRA turns personal medical expenses into business deductions. By covering your employee-spouse with family coverage, you, as the employer-spouse, also benefit.
If you’re a single business owner, you can still enjoy the benefits of the Section 105 plan by operating your business as a C Corporation.
The C corporation is a separate legal entity that can provide 105-HRA benefits only when it has one eligible employee (meaning you are the only employee).
If you have eligible employees besides yourself and your spouse, you don’t qualify for the 105-HRA and should consider other plans such as the Qualified Small Employer HRA (QSEHRA), a less-than-20-employee integrated HRA, a less-than-50-employee HRA, or the Section 125 plan (with or without a flexible spending plan).
For any Section 105 plan, your employees include all employees in your and your spouse’s businesses. The ACA-exempt 105-HRA is a plan that works with one eligible employee only.
If you think you fit the profile for the 105-HRA, we can help you determine if this is true. And if true, we can assist you in implementing this tax-favored plan effectively.
Reach out to us to explore the benefits of the 105-HRA.