An article that I co-wrote and wanted to share with you all:
IRC 105 (March 10th, 2014)
Communities: HSA/HRA/MERP/FSA Admin & Finance
HRA/MERPs Are Still a Viable Tax Savings Device for Small Businesses
MADISON, WI — March 10, 2014 — Health reimbursement arrangements (HRAs)/Medical Expense Reimbursement Plans (MERPs) 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 HRA/MERP’s will not change under the Patient Protection and Affordable Care Act (PPACA).
Based on Section 105 of the Internal Revenue Code, HRA/MERP 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, Employee to save $5,000 a year – family on employees group insurance (deductible, co-payments, dental, vision)may save $ 15,000 on their taxes with a Section 105 HRA/MERP. All HRA/MERP claim payments with underlining group medical, dental, vision coverage are not as a rule income to the employee/dependent.
IRS Notice 2013-54 has caused a great deal of confusion and misinformation in the marketplace, even among industry experts. In fact, Section 105c, h itself was not amended by the PPACA. Rather, the new ACA “market reform” provisions impose a penalty on some categories of HRA/MERP’s. But the following Section 105 c, h HRA/MERP plan designs are not affected by these “market reforms” and are still permitted as a pre-tax benefit:
- One Employee HRA/MERP (see 105 restrictions, Maximum payout per employee)– These types of HRA/MERP’s are typically offered to an employee/dependent and are only available with Group insurance. This HRA/MERP 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/MERP – These HRA/MERP’s provide coverage for dental, orthodontia, vision or long-term care only and also remain unchanged.
- Integrated HRA/MERP – These are multiple-employee HRA/MERP’s that are integrated with Group insurance. Each benefit eligible participant must be enrolled in a Group health insurance plan to qualify.
- Health Indemnity HRA/MERP – This HRA/MERP 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 funded prior to the employee turning 65 unless continued employed.
According to Andy Biebl, a well-known agricultural tax authority, CPA, and principal with CliftonLarsonAllen LLP, “These HRA/MERP’s (listed above) remain legitimate, logical and suitable methods of tax avoidance. I personally have recommended HRA/MERP plans to small business owners who qualify.”
If you find this all a bit confusing, contact a national third-party benefits administrator or DBT professional who specializes in small/mid-size business taxes and changing Healthcare Reform legislation.
About TASC and Diversified Employee Benefit Services, LLC (DEBS)
TASC is an award-winning nationwide third-party benefits administrator & DEBS using its certified Benefit Trust are tax-advantaged health benefits plans offering comprehensive services and serving companies ranging in size from two (2) employee to thousands! New product development, innovative tools, and outstanding transparent service keep TASC & DEBS products and services at the forefront of 105 c, h.
Agri Plan NOW and Biz Plan NOW (Section 105 HRA, MERP) are products that fall under TASC & DEBS Microbusiness umbrella. Agri Plan, Biz Plan NOW & DBT save small business owners an average of $5,000 a year on their out-of-pocket medical expenses!
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