Home / Blog / HRAs remain good tax savings option for small business

HRAs remain good tax savings option for small business

The ACA has brought a lot of changes, but HRAs remain good tax savings option for small business owners. The following article explains.

coreban2HRAs Are Still a Viable Tax Savings Device for Small Businesses

MADISON, WI — March 10, 2014Health reimbursement arrangements (HRAs) are a popular way for small business owners to save thousands of dollars each year on their taxes. The good news is that contrary to popular belief, many categories of HRAs will not change under the Patient Protection and Affordable Care Act (PPACA).

Based on Section 105 of the Internal Revenue Code, HRA benefit programs allow small business owners to deduct 100 percent of family out-of-pocket medical expenses as business tax deductions. This includes insurance premiums for health, long-term care, vision, and dental. The savings can be substantial: On average, families are able to save $5,000 a year on their taxes with a Section 105 HRA.

IRS Notice 2013-54 has caused a great deal of confusion and misinformation in the marketplace, even among industry experts. In fact, Section 105 itself was not amended by the PPACA. Rather, the new ACA “market reform” provisions impose a penalty on some categories of HRAs. But the following Section 105 HRA plan designs are not affected by these “market reforms” and are still permitted as a pre-tax benefit:

  • One Employee HRA – These types of HRAs are typically offered to a spousal employee and can be available with or without Group or Individual insurance. This HRA category does not change: It can be used for medical, dental and vision expenses and can include or not include a maximum limit cap.
  • Limited Purpose HRA – These HRAs provide coverage for dental, orthodontia, vision or long-term care only and also remain unchanged.
  • Integrated HRA – These are multiple-employee HRAs that are integrated with Group insurance. Each benefit eligible participant must be enrolled in a Group health insurance plan to qualify.
  • Health Indemnity HRA – This HRA type reimburses premiums for certain limited scope policies, including most traditional hospital indemnity and other fixed payment policies and specific illness policies (e.g., cancer).
  • Retiree HRA – For these plans, the employer controls the cost of retiree medical coverage by funding a fixed amount each year from the general assets of the business.

According to Andy Biebl, a well-known agricultural tax authority, CPA, and principal with CliftonLarsonAllen LLP, “These HRAs (listed above) remain legitimate, logical and suitable methods of tax avoidance. I personally have recommended HRA plans to small business owners who qualify.”

If you find this all a bit confusing, contact a national third-party benefits administrator or a tax professional who specializes in small business taxes and changing Healthcare Reform legislation.

Source: https://theihcc.com/en/communities/hsa_hra_fsa_admin_finance/hras-are-still-a-viable-tax-savings-device-for-sma_hsnc3u8t.html


Core Documents, Inc. has been providing free consulting, affordable plan documents, and plan updates as needed for Section 125 Cafeteria Plans and Health Reimbursement Arrangements since 1997. See more information about these fringe benefit plans at Core Documents’ website: https://www.coredocuments.com, or call toll free 1-888-755-3373.

Read more about how HRAs remain good tax savings options in these blog posts:

Do Shifts in HSA and HRA Accounts Portend Bigger Changes Ahead?

Section 105 HRA Maximizes Tax Savings — Core Documents Cuts Price to $149

HRAs permitted post-ACA: What types?

Copyright 2004-2024 Core Documents, Inc., All rights reserved