The BASE® Health Reimbursement Arrangement (HRA) was designed to assist with healthcare expenses, and provides our average client over $4,700 in tax savings. This plan allows small business owners the opportunity to deduct up-to 100% of health care costs, including individual insurance premiums and qualified out-of-pocket medical expenses.
The BASE® HRA is an IRS-approved tax savings plan created through Code Section 105 of the Internal Revenue Code that allows business owners the opportunity to deduct these expenses as a business deduction. Around since 1954, this type of HRA was granted Safe Harbor in the Affordable Care Act (ACA) for businesses with 1 employee.
- Reduce the financial impact of health care expenses.
- Pay for eligible, out-of-pocket health care expenses, while paying no taxes on reimbursements.
- Ensures that the plan is in full compliance with all current federal and state tax laws and insurance regulations.
- Creates the necessary plan documents as required by the Internal Revenue Service (IRS), Department of Labor (DOL), Employee Retirement Income Security Act (ERISA) and the Affordable Care Act (ACA).
- Performs an annual adjudication of all medical expenses as required by the IRS.
- Provides each client with an Annual Summary Report (ASR) which summarizes all deductions that will be allowed for the business tax deduction.
BASE® HRA Plan Eligibility
The BASE® Health Reimbursement Arrangement is a great method of increasing tax savings for small business owners. A Section 105 BASE® HRA can be administered to a wide variety of small businesses, such as a farmer and rancher, self-employed computer contractor, and more.
Below, you will find a listing of business types along with BASE® HRA qualification requirements for each. It is important to note that this listing is NOT comprehensive. If you have questions regarding eligibility, call BASE® toll-free at 1 (888) 386-9680.
As you can see, each type of small business has its own rules regarding Health Reimbursement Arrangements. If you have any questions, BASE® is here to help. Enrollment into the BASE® HRA gives you access to a comprehensive tax-advantaged benefit plan, as well as reliable service and support.
Our highly trained representatives will help you determine your eligibility for the BASE® HRA, set up the plan for your small business, and get you on the road to tax savings.
Tax Savings Calculator
Small business owners look to Health Reimbursement Arrangements to help contain the cost of health care. Implementing a Section 105 medical reimbursement plan allows clients to go beyond the standard deduction to increase tax savings. While 100% of health insurance premiums are tax deductible for the self-employed, this only affects income tax and does not reduce income when calculating Social Security taxes (Self-Employment Tax). The savings provided by an HRA is an easy way to take advantage of a tremendous tax savings, because it allows employers to take the additional 15.3% Self-Employment deduction. Plus, Social Security taxes are eliminated for the employee, as well as the employer with this type of plan in place.
But don't take our word for it, do the math yourself! Below you will find a tax savings calculator along with a list of qualified health expenses you may be able to deduct with the BASE® HRA. This valuable tool gives you a quick glimpse of how much you could save by taking advantage of this tax saving opportunity, provided you qualify.
Simply input some key information about your small business and find out how much you could save with a Health Reimbursement Arrangement.
Frequently Asked Questions
The Section 105 BASE® HRA is based on several sections of the Internal Revenue Code, including Sections 105, 106, 162, 213, and Revenue Ruling 71-588. In 1994, the IRS issued a National Office Technical Advice Memorandum regarding this plan. In 1999, the IRS Industry Specialization Program offered a coordinated issue paper regarding Section 105. Moving forward HRAs have seen additional notices and rulings further defining HRA compliance, such as IRS Revenue Ruling 2002-41, Notice 2002-45, and Revenue Ruling 2003-102.
The Affordable Care Act took compliance a step further for HRAs with the IRS issuing Notice 2013-54, which created the safe harbor for HRAs with fewer than 2 participants.
Section 105 of the Internal Revenue Code was written in 1954 in an attempt by the government to encourage small businesses to provide benefits to their employees. With health care costs on the rise in recent years, the HRA has become more widely utilized. With the tremendous amount of savings this plan offers, thousands of small businesses across the United States have adopted it in an attempt to combat the rising costs of health care.
The BASE® staff work very closely with tax professionals (and their clients) to bring the Section 105 BASE® HRA to those who qualify. Most tax professionals rely on third-party expense administrators, like BASE®, to properly establish and maintain an HRA for their clients.
Legally, any individual could administer an HRA for their business. However, you will need to be familiar with hundreds of pages of tax code and supply all the legal documentation required by the Internal Revenue Service, Department of Labor, and the Employee Retirement Income Security Act. You must also carefully adhere to state insurance regulations and have a third-party adjudicate your annual medical expenses. With tax professionals, insurance agents, financial planners and other trusted advisors across the country utilizing BASE® to administer this benefit plan to their clients, shouldn’t you too?
Plus, third-party adjudication of all medical expenses is required to ensure deductibility in accordance by law per your individual plan parameters and under IRS Code Section 213.
The Section 105 BASE® HRA must be offered to employees who meet the Department of Labor eligibility criteria. In most cases, full-time employees who are 25 years (or older) must be included in your plan. Please contact a BASE® representative for full details about employee requirements.
Medical expenses (including health insurance premiums) incurred prior to your enrollment in an HRA are not eligible for reimbursement. Only those expenses incurred after you establish a plan can be included. BASE® allows reimbursement of expenses to begin on the first day of the month of your enrollment. For example, if you enroll in the Section 105 BASE® HRA on June 15, then only your expenses incurred on or after June 1, of that same year are eligible for reimbursement. The IRS reiterated this position in a document published in March 1999 titled "Retroactivity". The IRS also issued Revenue Ruling 2002-58 to address issues caused by some plans that were still out of compliance.
With the Section 105 BASE® HRA, an employee is able to carry forward unused benefit amounts to subsequent plan years up-to the maximum carry forward amount established by the employer at the onset of the plan administration. In situations where an employee incurs more medical expenses than the plan allows, the additional expenses can be submitted for reimbursement in subsequent plan years.
Carry forward refers to the amount of unused benefit from the current year that you can add to the next year's benefit limit. For example, if you were given $5,000 this year, but used only $4,000, that unused $1,000 can be carried forward to your benefit limit for the next plan year.
Carry over refers to approved expenses that exceeded your benefit limit in the current year. For example, this year your benefit limit was $5,000, but your year-end expenses were $5,750. This means you had an additional $750 in expenses for this year over your benefit limit. Those expenses will carry over to the next plan year reducing your benefit limit to $4,250.
Click here for a comparison on HRA and HSA plans. One thing to remember is that an HSA qualified health insurance plan can be utilized with an HRA.
Yes, as long as you fall under the Safe Harbor Rules of having less than 2 employees on your plan.
Your share payment is not deductible for federal income tax purposes as a medical expense or as a charitable donation. Your share payment is not tax deductible as an insurance expense because these programs are not considered traditional insurance. Since there is the strong possibility that your medical expenses will get shared by another Member, you cannot deduct your share as a charitable donation, even though Christian Care Ministry is a 501(c)3 not-for-profit ministry.
Yes, your plan will be designed to reimburse Long Term Care premiums, Dental and Vision premiums, Supplemental premiums and noninsured medical expenses. Health Insurance premiums will not be able to be included.
The reimbursement of a Marketplace policy makes an employee ineligible for the Premium Tax Credit.