How Business Owners Grab 2014 Tax Savings
July 1, 2013
Vol. 9, Issue 7
If you’re a business owner and you don’t have a health reimbursement arrangement (HRA), now is the time to embrace those tax savings. An HRA allows you to reimburse employees for the cost of individual health insurance – a tax-deductible expense to you, and a tax-free fringe benefit for your employees. With the dawn of 2014, “ObamaCare” will make key changes to entice you to switch from the defined benefits of group health insurance to a defined-contribution HRA. I’ll explain more in this issue and show how easy it is to set up an HRA.
What 2014 Means to Business Owners
Have you wished for a way out of paying more for group coverage every year? The 2014 changes favor dropping group health insurance and covering employees with individual policies combined with an HRA.
Until 2014, that only works for employees who can pass medical underwriting, but guaranteed-issue individual policies fix that. Employees with a chronic health problem or reoccurring trouble from an injury will be able to get coverage as of October 1 this year. Those benefits will take effect January 1, 2014.
What Tax Subsidies Mean to Business Owners
Starting January 1, 2014, if your company doesn't offer employees a group plan that’s loosely deemed affordable and qualified, employees may qualify for federal subsidies. That’s based on their annual income.
To give you an idea of how that works, people with a total household income below 400 percent of the federal poverty line can get a subsidy to limit how much they spend on health insurance. It’s estimated that 68 percent of the population will be eligible on a sliding scale. For those with lower incomes, the expense of health insurance will be capped at two percent of income. People at the highest end of that scale will see the cap peak at 9.5 percent of annual income.
I think that will help most employees get benefits with an individual policy similar to what they got from group coverage - at a substantially lower cost. And, it gives employers a chance to permanently get out of the health insurance business.
What an HRA Means to Business Owners
An HRA is how you reimburse employees for the cost of their personal health insurance and if you choose, a portion of what they spend to meet the plan’s deductible and co-pays. Of course, you can reimburse them for other kinds of health care, like dental care. An HRA can be used to cover any medical expense that’s qualified under IRS Section 213 of the Code. There is no limit on the amount you may fund an HRA.
Since an HRA reimburses, there’s no requirement for up-front funding. And, that can help your company’s bottom line. You have the flexibility to change or end an HRA, or define maximum reimbursements for certain categories, such as dental.
You may want to set up an HRA to allow a balance be carried over from year to year so former employees can access it when they retire. You just can’t pay the balance to any employee directly.
An HRA can also reduce your taxes even if your only employee is your spouse. You can get our free report on this at www.HSAforAmerica.com/hra-self-employed-special-report.htm.
How HSA for America Helps Business Owners
However you choose to design your HRA, HSA for America has done most of the work for you. We can help you design the program as you want to set it up. We’ll put together all required documents for you, including an Employer/Employee Agreement, a Plan Document and Summary Plan Description. You can just check off what you want to be reimbursable, such as health insurance premiums, long-term-care plan premiums, and out-of-pocket expenses.
You’ll have all form documents within 72 hours along with log-in information so you can keep track of reimbursed expenses. At the end of a year, just make sure you've logged all expenses and print an Annual Benefit Statement to show your company’s tax-free benefits. To get started, visit www.HSAforAmerica.com/HRA-sign-up.htm.