What Was the Section 105 HRA Designed For?

The Section 105 HRA was designed for different kinds of small businesses and has been around for almost 60 years, helping employees and their spouses save thousands on their health care expenses.   

When it comes down to it, the Section 105 HRA turns personal health care expenses into business deductions.  It is an employer-sponsored health benefit plan that allows small business owners the opportunity to deduct up-to 100% of health care costs, such as individual insurance premiums and out-of-pocket health care, dental, and vision expenses, on a tax-free basis. 

The BASE® Section 105 HRA is especially applicable to the small business owner who can legitimately hire their spouse.  It helps to reduce the cost of health care insurance premiums and out-of-pocket health care expenses while saving money by not paying taxes on the reimbursement for eligible expenses.  On average, BASE® clients save $6,200 a year in valuable tax savings. 

The Section 105 HRA was designed for businesses who file as a Sole Proprietor, Partnership, C Corporation, or S Corporation.

With Sole Proprietor, the Section 105 HRA works well for those businesses who can legitimately hire their spouse who is active in the business.  The employed spouse is treated like any other employee, with the employer offering health care benefits as a part of their compensation package.

With a Partnership, the Section 105 HRA operates just like a Sole Proprietor.  The spouse of the partner must be a true employee, thus receiving benefits of the health benefits.  However, a partnership cannot be between a husband and wife. 

With a C Corporation, the Section 105 HRA does not have to have spousal employment.  The corporate entity may provide and deduct benefits for the business owner/employee director. 

With a S Corporation, the Section 105 HRA has some special rules that apply to health care benefits paid to a 2% or greater shareholder.  This rule only applies to shareholders and direct relatives of the actual shareholder (spouse, child, parent or grandchild).  A non-shareholder employee, not owning stock in the corporation and not related to the shareholder, can participate and see substantial savings.  The employee must be taking a W-2 salary from the business and those wages must be subject to social security tax. 

One of the most important plan design concepts of the Section 105 HRA is having legitimate employment between spouses or other employees. 

For more information on the Section 105 BASE® HRA, contact BASE® at 888.386.9680 or visit www.BASEonline.com.

Comments are closed