One-Person Section 105 HRAs Survive ObamaCare Restrictions

Since the Affordable Care Act’s mandate for essential health benefits and no annual or lifetime limits in health insurance only apply to plans with 2 or more employees, one-person Section 105 HRAs survive ObamaCare restrictions pretty much intact. Read on to see what this means for a micro-business wanting to provide health benefits for just one employee (or an employee-spouse).

It was very good news, and a relief to many, to see Section 105 HRAs survive Obamacare rules making. For decades small businesses, especially small family farms, have provided medical, dental, and vision benefits to a spouse/family member/employee tax-free as a business expense under IRC Section 105.

These small employer-sponsored self-funded plans could reimburse medical insurance premium and first-dollar out of pocket medical expenses as part of the employment and compensation agreement to a single employee (often  a spouse-employee).

When it’s a spouse/employee, the business owner is covered as a dependent of the spouse. Insurance costs and out of pocket medical expenses for the business owner and spouse are then 100% tax deductible.

Business owners also realize additional self-employment tax reductions by paying the insurance premium through a Section 105 HRA.

It wasn’t long before non-agricultural small business owners realized they could hire a spouse and take these same tax-favored deductions. Today millions of small business owners routinely hire a spouse as a legitimate employee and take advantage of this tax-deduction.

HRAs in general have become extremely popular with employers of all sizes to provide a defined monthly benefit to their employees on a tax-advantaged basis. HRA plan benefits could be easily budgeted by the business from year to year. Many employers used the HRA concept to provide employees with tax-free dollars to purchase individual health insurance, which normally cost less than group insurance. Many more employers were allowing their employees to use the HRA benefit dollars for out-of-pocket medical, dental, and vision expenses.

That all changed under new ObamaCare regulations that effectively eliminated this benefit option, and ObamaCare competition.

HRA plans got caught up in this new no annual/lifetime requirement and tens of thousands of employees nationwide ;ost HRA benefits as well. Most employers were forced to end or amend their HRA because they couldn’t afford to have a no annual/lifetime benefit group health policy on a small, self-funded HRA plan.

Good News for Tax Planning

Because ACA rules made the no annual/lifetime benefit requirement only for plans with 2 or more employees, all one-person Section 105 HRAs survive ObamaCare’s new regulation, and remain 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 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-Affordable Care Act world.

To take these deductions the IRS requires the business owner to first establish a formal Section 105 HRA plan document. Core Documents has been assisting small business owners to establish these plans and providing the required IRS compliant Section 105 HRA plan document since 1997.  Call us today at 1-888-755-3373 and talk to a Plan Consultant about how we can assist you and reduce income tax liability.

Average Savings = $5,000 Per Year with a Section 105 HRA Plan Document

No annual fee — Core Documents does not require an annual renewal fee to maintain your plan document package. A plan document only needs to be updated when there are changes in the plan or in the law that make it necessary. We will notify you when there are sufficient changes in the Code to require amending and restating your Plan and ask that you keep us informed when there is a change to your plan.  You can amend and update your plan document anytime, at a discounted fee and only when necessary, which is the most cost-effective way to maintain it.

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For small businesses with more than one employee, please consider:

How is an employer eligible for a QSE-HRA? — Group size, GHP rule

Individual Coverage HRA: Choice and affordability in employee health benefits

ICHRA or QSE-HRA — Which is best for your business?

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Core Documents is the country’s leading provider of cost-effective, tax-saving benefit plan documents for Section 125 Cafeteria plans and Health Reimbursement Arrangements. The Trusted Source since 1997, thousands of satisfied agents and employer groups nationwide rely upon Core Documents for free plan design consulting services, plan document updates, ERISA Wrap SPDs, and administration services.