Thursday, August 2, 2012

HRA plans have great value in Delaware - Part 3

A few other details about health reimbursement accounts:
  1. Similar to pension plans, some options are available for limiting participation eligibility to after a certain period of employment, etc.
  2. Reimbursements for the former year may be sought until the due date of the tax return, however, time must be allowed for the admin to prepare and mail the annual report before the tax return is filed. 
  3. Former employees are not eligible for reimbursement of expenses incurred while an employee but not submitted for reimbursement until after employment ends.
  4. An HRA is NOT the same as a HSA (health savings acct). A HRA is totally employer funded, nothing may be withheld from employee pay. A HSA only functions in conjunction with the presence of a high deductible health insurance plan. An employee does not have to have any health insurance to participate in a HRA.
  5. The reimbursements are not taxable as compensation to the employee but are fully deductible by the employer as a fringe benefit as long as a qualified plan is established and annually renewed.
  6. Unused allowances may carry forward for one year only and then they are forfeited.
  7. Most states do not allow payment for major medical insurance premiums with an HRA although dental and vision premiums are normally ok. DE now allows reimbursements of health insurance premiums

Wednesday, August 1, 2012

HRA plans have great value in Delaware - Part 2

Health reimbursement accounts are great for certain self-employed persons in Delaware who meet the following criteria:
  • No employees
  • Have no insurance or significant out of pocket medical expenses in spite of insurance
A health reimbursement account can be set up to enable 100% above the line deductions of medical  costs which would otherwise be deducted oin schedule A to they extent they exceed 7.5% of AGI - if you can itemize. Depending on your federal and state tax rates, the break even point for covering the nominal annual admin fee may be as low as $1000 in costs.

Sole-proprietors/partnerships/LLCs will need to initiate employment of a non-owner spouse/s in order to take advantage of this program. Adding the hassles of payroll filings to the mix may negate the benefits of this plan unless medical and medical insurance expenses exceed $3000-$4000/year.

S-corp owner/operators are required to pay themselves wages so payroll will already exist in most cases. Reimbursements are deducted by the corp in the same manner as health insurance premiums - as wages not subject to FICA taxes. The above the line deduction on the 1040 washes out the income at the personal level.