The Section 105 Health Reimbursement Arrangement has been around since 1954. It has grown in popularity among small business owners and for those in the agriculture business, such as family farms. It has allowed family farms to hire their spouse/family, offer health benefits, and help offset the hefty cost of health care expenses.
The Section 105 Health Reimbursement Arrangement is a tax savings plan that allows small business owners to deduct up-to 100% of health care costs, including individual insurance premiums and other qualified out-of-pocket health care expenses as a business expense.
The BASE® Section 105 HRA is for employers with one employee that classify as a Sole Proprietor, Partnership, C Corporation, or S Corporation. This plan is especially made for self-employed business owners who can legitimately hire their spouse, helping them save, on average, $5,900 in annual tax savings.
The best way to see how a self-employed business owner can save with the Section 105 HRA is by looking at an example. In this instance, let’s look at a couple that files as a sole proprietorship, owns a family farm, and saved $6,345 in valuable tax dollars with the Section 105 HRA. The farmer, in this example, hired his spouse that provides valuable services to the family farm by, helping in the field, running errands, picking up parts, keeping the books, and more. Listening to his accountant and tax preparer, the farmer formally employed and established a compensation package for his wife and enrolled in the Section 105 HRA. To pay her the appropriate W-2 wages, the farmer evaluated the role his wife played in the business and decided to compensate her $18,600 a year. The compensation breakdown follows:
- Reimbursements for family medical expenses $15,000
- ($10,000 health insurance premiums and $5,000 out-of-pocket health care costs)
- Wages $3,600/year ($300 gross wages per month)
- TOTAL: $18,600
By enrolling in the Section 105 HRA, the couple in this example can deduct 100% federal, state, and FICA (Social Security/Medicare) taxes on the $15,000 (from above line 1) and received $6,345 in tax dollar savings.
Colleen E., an actual BASE® Section 105 HRA client since 2014, said, “With drastically increasing health insurance premiums and health care costs, every dollar saved is important. That is why taking advantage of this benefit is so important…from the guidance offered the very minute we enrolled in the plan, to the necessary documentation, we felt everything was very easy to understand.”
The best part is when Colleen receives their BASE® HRA Annual Summary Report at the end of each year to provide her tax preparer, they save well over the average $5,900 a year in valuable tax dollars.
Why should a small business have BASE® administer the Section 105 HRA plan? BASE® will provide step-by-step instructions on how to successfully make the most of the HRA with a convenient online portal that provides access to reporting and documentation, while providing the ability to track health care expenses electronically with an easy-to-use tool. A valuable tax savings calculator that gives employers a glimpse of how much could be saved when taking advantage of this tax savings plan. The necessary plan documents required by the IRS, DOL, ERISA, and the ACA will be created and customized, along with the required year-end reports that will be generated to summarize all deductions needed to provide tax professionals at tax time. The BASE® Section 105 HRA gives every business a simple, effective solution to help deal with the cost of health care and the tax savings will far outweigh the fee of the plan.
The Section 105 HRA has opened the door for small businesses to offer health benefits to their employees, help to save thousands of valuable tax dollars each year, and pay for their health insurance premiums and other qualified health care costs. Contact BASE® at 888.386.9680 or visit www.BASEonline.com to learn more about the Section 105 HRA and other options available to help make health care affordable.