ABOUT THIS HRA PLAN DOCUMENT PACKAGE
Video: Executive Summary of the 1 Employee or Spouse Section 105 HRA Plan
04:31 Minutes
The Section 105 One-Person HRA is how many small micro-business owners can reduce the high cost of health insurance and out-of-pocket medical expenses.
Section 105 of the Internal Revenue Code has been around since 1954. Soon thereafter Section 105 One-Person HRA plans gained popularity in the agricultural industry as farmers utilized the plans to provide these tax deductions to their family members employed on the farm.
Today Section 105 HRA One-Person Plans are widely accepted with over 50,000 small business owners taking advantage of the tax deduction. Average tax savings are more than $5,000 per year. Savings may be more or less depending on the amount of deductions.
The Affordable Care Act (ACA) eliminated annual/lifetime benefit limits for plans with 2 or more employees;
however all one-person HRA plans survived this new ACA/ObamaCare regulation, and are still a viable
benefit option.
What does this mean for many intelligent, self-employed business owners, or potential new small business owners?
Establish a Section 105 HRA through Core Documents and reimburse your insurance premium and out-of-pocket
medical, dental, and vision expenses tax-free and save thousands of dollars you couldn’t deduct otherwise.
I can’t think of a better reason to start a small family business than to use those funds, tax-free to pay for
the extremely high cost of healthcare in a post-ACA world.
What is a Section 105 HRA for 1 Employee or Spouse?
HRAs are Medical Expense Reimbursement Plans that allow you to save substantial tax dollars on insurance premiums
and out-of-pocket medical expenses not covered by insurance. Section 105 HRA One-Person HRA Plans are designed
specifically for small business owners who are considered self-employed, or the only eligible employee of a
Corporation, or who can legitimately hire their spouse, or have just one employee eligible for benefits. Because
the spouse/employee can be reimbursed for family expenses the employer indirectly benefits as well. This type of
plan is made possible by Section 105 of the Internal Revenue Code, Revenue Ruling 71-588 and IRS Letter Ruling 9409006. (For a C corporation and S corporation
owner it is not necessary to use the spouse/employee method. The corporation becomes the employer and the owner
is an employee as long as they are an employee receiving a regular paycheck.)
Who Can Participate?
Section 105 HRA One-Person Plans are best suited for employees of sole proprietors, corporations, limited
liability companies, and partnerships. Business owners generally can’t participate in a Section 105 HRA plan.
This is why the spouse/employee approach has become so popular. However, C corporation and S corporation owners
can participate as long as they’re receiving a regular paycheck as an employee
Aren’t These Expenses Already Deductible by the Self-Employed
Good question. The answer is yes, however the deductions are limited as outlined below.
- Self-Employed Health Insurance Deductions with a Section 105 One-Person HRA plan: Effective in 2003 and thereafter 100% of health insurance premiums became tax deductible for the self-employed.The self-employed can take this deduction whether they itemize or not. However, most people are unaware that the 100% health insurance deduction only affects income tax and does not reduce income when calculating Social Security taxes (Self-Employment Tax). The 15.3% Self-Employment tax is still paid on insurance premiums. If an employer elects to establish a Section 105 HRA for a spouse/employee or
themselves as an employee, the Social Security taxes are eliminated for the employee as well as the employer. The Section 105 HRA allows employers to take this additional 15.3% deduction.
- Self-Employed Medical Expense Deductions
without a Section 105 One-Person HRA Plan: Medical expenses are already tax deductible for the self-employed, aren’t they? Yes, they are, if you itemize deductions; however, you can only write-off medical expenses that are in excess of 10% of Adjusted Gross Income (AGI). For example, if your AGI is $100,000 and you have $12,500 in out-of-pocket medical expenses, you can only deduct $2,500 ($100,000 X.10 = $10,000, so $12,500 – $10,000 = $2,500 in excess you can deduct). With a spouse/employee Section 105 HRA, the employer can deduct the entire $12,500 as a business expense.
Establishing a $199 Section 105 One-Person HRA Plan if You’re Hiring Your Spouse
Care must be taken when establishing a Section 105 One-Person HRA
plan to ensure that a legitimate employer/employee relationship exists with the family member. In 1999 the IRS Industry Specialization Program offered a coordinated issue paper regarding Section 105 and the spouse/employee issue that said: “The extent and nature of a spouse’s involvement in the business operations is critical. Although, part-time work does not negate employee status, the performance of nominal or insignificant services that have no economic substance or independent significance may be challenged. Merely calling a spouse an “employee” is not sufficient to qualify a non-working spouse as an employee”.
The question is, does the spouse provide meaningful services to the company, and would the employer have to hire someone else to provide the same services if the spouse was not available for employment? If the answer is yes, then you qualify to establish a Section 105 HRA plan for your spouse.
Our friendly and knowledgeable staff is available to
answer any questions you may have via e-mail or phone call,
Monday through Friday, 9 am to 5 pm ET:
Contact Form
1-888-755-3373
[email protected]
Core Documents will notify you when there are sufficient changes in the Code to require amending and restating
your Section 105 One-Person HRA Plan. You can amend and update anytime for just $199, and only when necessary
which is the most cost effective way to establish and maintain a HRA Plan.
Core Documents has been providing Section 105 One-Person HRA plans for small business owners since 1997. We
would be happy to assist you in establishing your own small self-funded Section 105 HRA plan document and
administrative kit for only $199. Call us today at 1-888-755-3373 and talk to a Plan Consultant about how we
can
assist you and reduce your income tax liability.
*Most documents go out the same day via email within hours M-F. Orders placed on the weekend will be emailed
Monday morning. Keep in mind that December, January, and February are our busiest months of the year and
documents are processed in the order they are received. The Rush Order fee ($25) simply brings your document
to
the top of the stack to be processed immediately.