HRA 105 FAQ Section
Does my business qualify for an HRA 105 Plan?
How much can I save by adopting an HRA 105 Plan?
How do I adopt an HRA 105 Plan?
How much does an HRA 105 Plan cost?
What is an HRA 105 Plan?
Do I need a TPA for my HRA 105?
Does my business qualify for an HRA 105 Plan?
The good news is that every business will qualify for adopting an HRA105 Plan or Health Reimbursement Arrangement, including the largest of corporate entities such as American Airlines or General Motors to the smallest of businesses operating out of the back bedroom. The limiting factor is that only bona fide employees may participate in the new HRA 105 plan and therefore have eligible expenses reimbursed under the plan. Therefore, if your business is organized as a sole proprietorship, as partnership, a Limited Liability Company, or a Subchapter S corporation, then your personal medical expenses may not be eligible for reimbursement under the plan. The business would still qualify for an HRA 105 plan, but could potentially not be beneficial to you the owner. If this is your situation, you might consider changing the entity form of your business so that you could qualify as a bona fide employee or considering hiring your spouse as a bona fide employee.
How much can I save by adopting an HRA 105 Plan?
The amount that you can save by adopting an HRA 105 plan for your small business will vary depending on your specific facts and circumstances, but the easy answer is that you can save a significant amount. The key point in tax savings through the adoption of an HRA 105 plan is that all medical expenses are in effect paid with pre-tax dollars. Without an HRA 105 Plan, the small business owner can most likely deduct health insurance premiums paid; by including those premiums on line 29 of their personal form 1040 where the total premiums reduce adjust gross income. Although the premiums are deductible for federal income tax purpose, they are not deductible for self employment tax purposes. Other medical expenses such as co-payments, deductibles, out of pocket costs, dental expenses, vision expenses, etc. can be included on Schedule A, Itemized Deductions, but are subject to limitation, and are also not deductible for self employment tax purposes.
How do I adopt an HRA 105 Plan?
There are only two formal requirements for Health Reimbursement Arrangements. First, the plan must be in writing and second the plan must be non-discriminatory. In order to adopt an HRA 105 Plan, you must have a written document that IRS and ERISA compliant. There are literally hundreds of companies that can provide qualified documents with fees ranging from about $125 and up. You can search the internet for “HRA 105 Plans” and find a larger number of options. As a member of the Southern Consumers Alliance, you also have access to a free IRS and ERISA compliant HRA 105 Plan. Simply log on to the website and click the link for to adopt your plan. You will be prompted to complete the application and then will be provided with everything you need to formally adopt your new HRA 105 Plan. Either way, you must have a written plan.
The HRA 105 plan effectively moves ALL of these expenses to the business portion of your tax return making all of these expenses deductible both for federal income tax purposes and for self employment tax purposes. If an average family of four pays approximately $5,000 in health insurance premiums per year and has additional medical costs of approximately $7,500, can save as much as $3,750 in lower taxes simply by adopting an HRA 105 plan. The amount of savings you would achieve will obviously depend on your specific situation. Check out the HRA 105 savings calculator where you can enter detail related to your situation to see how much you might be able to save by adopting your HRA 105 Plan.
How much does an HRA 105 Plan cost?
The total fees for a qualified Health Reimbursement Arrangement vary from provider to provider but typically cost between $125 and $200. Many companies will also administer the plan for you with annual reviews of effectiveness and employee eligibility for additional fees. The Southern Consumers Alliance provides a qualified HRA 105 plan free to members in good standing as part of the benefits of membership. Regardless of which plan you choose, you must have a formal written plan in order to have a qualified HRA 105 plan.
An HRA 105 Plan, or Health Reimbursement Arrangement, is an employee benefit program authorized under Internal Revenue Code Section 105whereby a company agrees to reimburse qualified medical expenses incurred by its employees. Bona fide employees of the company incur their own medical expenses for things such as health insurance premiums, copayments, deductibles, prescription medications, etc., and then bring those receipts to the company and request reimbursement under the HRA 105 Plan. The company reviews those expenses to make sure they qualify and then simply cuts a check back to the employee for the costs incurred.
The reimbursements are not taxable income to the employee but are fully deductible business expenses for the company. Therefore, all of the medical expenses of those employees have now become fully deductible business expenses reducing federal income tax as well as self employment tax. The plans must be in writing and must be non-discriminatory but can be the most powerful tool available to the small business owner for reducing the cost of health care for its employees.
Do I need a TPA for my HRA 105?
You are not required to have a Third Party Administrator or TPA to manage your Health Reimbursement Arrangement. The plan must have a plan sponsor, which in most cases, is the company itself. The plan must be in writing and must be non-discriminatory, but does not require any other formal administration or oversight. Since the HRA 105 Plan is a reimbursement plan, you will need to maintain adequate review of all invoices submitted by your employees for eligibility under the plan, as well as maintain adequate documentation of all reimbursements, but that can be done internally by your office personnel.