BASE^® Blog

Health Reimbursement Arrangements continue to grow in popularity, but many small businesses do not know if their small business qualifies to go beyond the standard deduction and save thousands in additional tax savings just by enrolling in the Section 105 HRA.

The BASE® 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 qualified out-of-pocket medical expenses as a business deduction.  It can be administered to a wide variety of qualified small businesses such as ones that classify as a Sole Proprietor, Partnership, C Corporation, or S Corporation.  With clients, on average, saving over $5,900 in valuable tax dollars.

The Section 105 HRA was designed for a self-employed individual to employ their spouse who is active in the business, and to offer that employee/spouse a health benefits plan.  That plan covers the employee, the spouse, and their dependents.

The best way to see how the Section 105 Health Reimbursement Arrangement works is by seeing an example.  Let’s check out Mark and Tara who own a family farm*.  They saved $5,076 with the Section 105 HRA.  Mark owns a family farm with his wife, Tara, who provides valuable services by helping in the field, running errands, keeping the books, and more.  Taking the advice of his accountant, Mark decides to enroll in the Section 105 HRA.  Mark formally employs and establishes a compensation package for Tara.  To pay her the appropriate W-2 wage, Mark evaluates her experience and role she plays in the business and decides to compensate Tara $14,000 per year.  The compensation breakdown is as follows: 

1. Reimbursements for family health insurance premiums:                   $7,000
2. Reimbursements for qualified out-of-pocket medical expenses:       $5,000
3. W-2 wages:                                                                                                   $2,000

                                                                                                             TOTAL:        $14,000

By enrolling in the Section 105 HRA, Mark can deduct 100% federal, state, and FICA/Medicare taxes on the $12,000 in reimbursed medical expenses (1 and 2 added above) and received $5,076 in realized tax dollar savings.

Being able to deduct 100% of the family’s health care costs helps to leave a substantial amount of potential tax savings.  The BASE® Section 105 benefits are:

• A reduction in the financial impact of health care expenses
• Out-of-pocket expenses are eligible to be paid for, while paying no taxes on reimbursements 

Want to experience the BASE® difference?   With BASE®, the 105 is portable and can work with any type of insurance plan and is easy and inexpensive to set up with employers realizing tax savings.  The necessary plan documents required by the IRS, DOL, ERISA, and the ACA are created and customized to each business with year-end reports, such as the Annual Summary Report (ASR) summarizing the medical expenses allowed for the business tax deduction.  All medical expenses once entered will be adjudicated and substantiated annually as required by the IRS.  Small businesses will have the peace of mind knowing the plan administration is handled by BASE® and in compliance, while also being provided with the service to meet their benefit needs.

To learn more about how the BASE® Section 105 HRA provides small business owners with an average of over $5,900 in savings each year, call at 888.386.9680 or visit www.BASEonline.com.

* The characters are fictional, but the numbers and tax savings are real.

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Since January of 2020, the NEW Individual Coverage Health Reimbursement Arrangement (ICHRA) has opened the doors, helping business owners of all sizes, implement a more predictable benefits solution.

The BASE® Individual Coverage Health Reimbursement Arrangement (ICHRA) is a tax-advantaged health benefit used to reimburse employees for personal health care expenses, such as individual health insurance premiums and out-of-pocket medical expenses.  It provides a health benefit to better fit the needs of many businesses, regardless of size.

With over 800,000 individuals looking to benefit from the ICHRA by 2024, there is much excitement about it’s potential, but with that excitement comes new questions.

The Affordable Care Act (ACA) introduced Applicable Large Employers (ALEs), which is any company or organization that has an average of at least 50 full-time employees or "Full-Time Equivalents" or "FTEs." For the purposes of the Affordable Care Act, a full-time employee is someone who works at least 30 hours a week.  ALEs have specific requirements they must follow under the ACA.  Most ALE employers are familiar with the 1094/1095 tax form reporting required.

Recently, a question was posed to BASE® - “Do Non-ALE employers (those with less than 50 full-time equivalents) need to file the 1094-B and 1095-B if they sponsor the ICHRA?”

The answer is YES.  Health insurance issuers, carriers, Marketplaces, and government programs typically file to report coverages.  However, because the ICHRA is considered a “self-funded” plan offered by the employer for health coverages, it is the plan sponsor’s responsibility to report coverage for each participant.

Employers, regardless of size, who sponsor an ICHRA plan must complete ACA reporting.  The size of the employer’s organization determines which forms should be completed and filed:

• Non-ALE (less than 50 FTEs) – Forms 1094-B and 1095-B need to be completed and filed. 
• ALE employers (50 or more FTEs) – Forms 1094-C and 1095-C should be used.

All forms for 2020 have been modified to add new codes for reporting offers of Individual Coverage HRAs and new lines for reporting required information.  In addition, employers must distribute copies of the Form 1095 either B or C to plan participants. If you have clients enrolled in the BASE® ICHRA, they have received communication from us regarding this information and we recommended working with their tax professional to ensure proper filing with the IRS.

For the ICHRA to be in compliance, employees must first enroll in individual coverage that includes individual policies, student health coverage, and Medicare Part A, B, C premiums.  Individual coverage does not include coverage under a spouse’s group health plan, short-term or limited-duration policies, or health care sharing ministries.  Once eligible coverage is obtained, the employee can submit qualifying premiums and, in some plan designs, Section 213(d) medical expenses for reimbursement. 

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