Note: None of this should be taken as legal or tax advice.
A common question about HRAs for small employers is "
Can an owner participate in a HRA?" The next question is almost always "Can family members of an S-Corp owner participate in a
Health Reimbursement Arrangement (HRA)?"
S-Corp owners establishing an HRA for their employees will likely want to include themselves and their family members in the HRA platform, although in some cases such owners and their family members may not receive the same amount of tax benefits as non-owner employees.
Title 26 of IRS Code states that spouses, children, grandchildren, and parents are all considered owners when one person has greater than 2% ownership of an S-Corp.
The Owners specified above may receive reimbursement from their companies for medical expenses, and they may use the HRA platform to receive and track these reimbursements. However, reimbursements made to Owners must be reported on the owners'/partners' wages (on their W-2 and 1040 forms) subject to federal income tax withholding. These reimbursements are exempt from Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes, similar to profits passed through to the owner. Further, the cost of the reimbursements is a deductible expense to the business, reducing the taxable income of the business and, thus, reducing the taxable income of the owners/partners (because these are flow-through tax entities).
Reimbursements paid to family members of S-Corp owners must be reported as income (on their W-2 and 1040 forms) and are subject to federal income tax withholding. IRS Notice 2008-1 (see
http://www.irs.gov/pub/irs-drop/n-08-01.pdf) clarified that S-Corp owners may only take the self-employed health insurance premium tax deduction (on Form 1040) if the S-Corp pays for or reimburses the owner for the premiums. Thus, S-Corp owners establishing an HRA for their employees will likely want to include themselves and their family members in the HRA platform, although in some cases such owners and their family members may not receive the same amount of tax benefits as non-owner employees.
Note: None of this should be taken as legal or tax advice.
Recently, the IRS released
Notice 2011-28, which provides guidelines for employer reporting of group health insurance costs on employees' Form W-2.
Section 6051(a)(14) applies to the following:
- Employers with 250 or more W-2 employees
- Employers with self-funded insurance plans subject to COBRA.
Employer group health insurance expenses do not become taxable under the requirement. Contributions made to
Health Reimbursement Arrangements (HRAs) are not required to be reported under Section 6051(a)(14):
"Q-18: Is the cost of coverage under a Health Reimbursement Arrangement (HRA)
required to be included in the aggregate reportable cost reported on Form W-2?
A-18: No. An employer is not required to include the cost of coverage under an HRA in
determining the aggregate reportable cost. If the only applicable employer-sponsored
coverage provided to an employee is an HRA, the employer is not required to report any
amount under § 6051(a)(14) on the Form W-2 for that employee."
Note: None of this should be taken as legal or tax advice.
On May 3rd, the
Internal Revenue Service (IRS) requested comments regarding provisions included in the
Affordable Care Act that will apply to certain employers starting in 2014.
Under the Affordable Care Act, employers with 50 or more full-time employees that do not offer affordable health coverage may be required to pay a penalty. The law specifically exempts small firms that have fewer than 50 full-time employees.
There are three ways to submit comments.
- E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-36” in the subject line.
- Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-36), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
- Hand deliver to: CC:PA:LPD:PR (Notice 2011-36), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.
Comments are due June 17, 2011.
Note: This should not be taken as tax or legal advice.
The new guidance modifies previous guidance to permit taxpayers to continue using FSA and HRA debit cards to purchase over-the-counter medications for which the taxpayer has a prescription. Effective after Jan. 15, 2011, in accordance with the new guidance, this use of debit cards must comply with procedures reflecting those that pharmacies currently follow when selling prescribed medicines or drugs.
The procedures include requirements that a prescription for the medication be presented to the pharmacy or the mail-order or web-based vendor that dispenses the medication and that proper records be retained.
In accordance with the Affordable Care Act, the cost of over-the-counter medicines or drugs can be reimbursed from a health FSA or HRA if a prescription has been obtained. The requirement to obtain a prescription does not apply to insulin.
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