Medical Insurance Reimbursement
Medical Insurance Reimbursement
If you are self-employed, your income is subject to self-employment 15.3% FICA tax. Added to 28% of federal income taxes and 5% of state income tax, this could leave you paying nearly 50% of their income to the government. Fortunately, most self-employed workers benefit from the creation an HRA or Health Reimbursement Agreement. An HRA can enable your company to reimburse you for health insurance and out-of-pocket medical expenses, and will save an extra $ 3,000 each year.
Health Reimbursement Arrangements for Self-Employed
An HRA is simply an agreement that allows your company to cover medical expenses of employees, including premiums for individual health insurance as a fringe benefit tax free. This tax benefit was established in section 105 of the IRS tax code in 1955, when General Electric pushed for a rule for reimbursement of business to give more flexibility in creating employee benefits.
Any person who created an S-Corp or C-Corp is eligible to establish an HRA. If you are a Schedule C or Schedule F owner only, an HRA is allowed if your spouse can work at least part time in the company. You will establish a benefits package for employees that covers the raw health insurance, the premiums for disability insurance premiums for long-term care, and even out-of-pocket medical expenses such as dental coverage.
An HRA does lower their taxes, because when you get to cancel the medical expenses on your Schedule C, to avoid paying federal taxes, state taxes, FICA and self-employment 15.3% taxes. Not only can the company will reimburse the cost of health insurance premiums, but you can also configure the HRA to reimburse dental care coverage, health prevention, disability insurance, insurance long term care and other out of pocket medical expenses.
If you are self-employed but have no an HRA, you can write your health insurance premiums in 1040, which saves federal income taxes. However, you are still subject to FICA taxes and State revenue for these expenditures. You can not cancel any of the other aforementioned costs.
Using an HRA with a medical savings account
Some financial advisers do not realize that you can have an HRA, along with a Health Savings Account (HSA). You can, of course. The only caveat is that the HRA can not reimburse costs could be applied toward the deductible of the HSA, such as doctor visits or prescription drugs. However, it may cover all premiums insurance and preventive care.
The potential savings are considerable. Suppose a business owner is in support of 28% taxes, has HSA plan, and is incurring the following expenses.
- Health insurance premiums – $ 7,000
- Prevention costs – $ 1,000
- Other insurance – $ 2,000
Self-employed business owner can cancel the premium of $ 7,000 in federal taxes Income, savings of 28% of that or $ 1960. If the HSA is fully funded, an additional $ 1,582 will be stored outside of federal income taxes and $ 282.50 in state income tax. Thus, in total, taxes on the business owner will go through $ 3824.50. Once the HRA is set, the $ Above 10,000 in expenses can be reimbursed by the company. Thus, the business owner would be for a total of $ 2,800 in federal income taxes, $ 500 of income taxes in the state and $ 1,530 in self-employment taxes. The owner of the company will also benefit from the same $ 1,960 in rel = "nofollow" href = "http://www.health–savings–accounts.com/"> HSA tax savings for a total tax reduction of $ 6,790.
The Smart business owners take advantage of all tax deductions for those who qualify. You may be reimbursed by health insurance costs since the beginning of the year, but outside pocket expenses only from the date they start the HRA.