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Many companies now offer Health Reimbursement Arrangements (HRAs) in conjunction with high-deductible health plans (HDHPs). HRAs offer some advantages over the perhaps better-known HDHP companion account, the Health Savings Account (HSA). If you\u2019re considering adding an HRA, you might assume that, as a business owner, you can participate in the HRA. But this may not be the case.<\/p>\n
Following the rules<\/strong><\/p>\n Whether an owner can participate in his or her company\u2019s HRA depends on several factors, including how the company is organized and the amount of the business owned by each working owner. Tax-free benefits under an HRA can be provided only to:<\/p>\n Owners who are \u201cself-employed individuals\u201d within the meaning of Internal Revenue Code Section (IRC) 401(c) aren\u2019t considered employees for this purpose and aren\u2019t allowed to participate in an HRA on a tax-favored basis.<\/p>\n Defining the self-employed<\/strong><\/p>\n Generally, a self-employed individual is someone who has net earnings from self-employment as defined in IRC Sec.\u00a01402(a), accounting for only earnings from a trade or business in which the \u201cpersonal services of the taxpayer are a material income-producing factor.\u201d Ineligible owners include partners, sole proprietors and more-than-2% shareholders in an S\u00a0corporation. Stock ownership by employees of a C\u00a0corporation doesn\u2019t preclude their tax-favored HRA participation.<\/p>\n The ownership attribution rules in IRC Sec.\u00a0318 apply when determining who\u2019s a more-than-2% shareholder of an S\u00a0corporation, so any employee who\u2019s the spouse, child, parent or grandparent of a more-than-2% shareholder of an S\u00a0corporation would also be unable to participate in the S\u00a0corporation\u2019s HRA on a tax-favored basis. A disqualified individual (whether because of direct or attributed ownership) could, however, be the beneficiary of a qualifying participant\u2019s HRA coverage if he or she is the qualifying participant\u2019s spouse, tax dependent or child under age\u00a027.<\/p>\n Comparing HRAs to HSAs<\/strong><\/p>\n Although self-employed individuals can\u2019t receive tax-free HSA contributions through a cafeteria plan, at least they can have HSAs. This relative advantage has led some employers to favor HSA programs over HRAs.<\/p>\n But HRAs have other advantages for employers, including more control over how amounts are spent and typically lower costs relative to the nominal amount of benefits provided. (While the full HSA contribution must be funded with cash, HRAs typically are notional accounts that need only be funded when participants incur expenses, and not all participants will incur expenses up to the limit established by the employer.) Thus, the decision can seldom be made based on the participation rules alone.<\/p>\n Going in smart<\/strong><\/p>\n Controlling costs remains a challenge for most businesses that offer health care benefits. An HRA may be a feasible solution, but make sure you know all the rules going in. Our firm can help you choose health care benefits that suit you and your employees.<\/p>\n \u00a9 2019<\/em><\/p>\n <\/body> Many companies now offer Health Reimbursement Arrangements (HRAs) in conjunction with high-deductible health plans (HDHPs). HRAs offer some advantages over the perhaps better-known HDHP companion account, the Health Savings Account (HSA). If you\u2019re considering adding an HRA, you might assume that, as a business owner, you can participate in the HRA. But this may not […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[],"class_list":["post-14088","post","type-post","status-publish","format-standard","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14088","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=14088"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14088\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=14088"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=14088"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=14088"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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