In the past, health reimbursement arrangements (HRA) was a popular vehicle used by small businesses to reimburse employees tax-free for health insurance premiums and medical expenses out of pocket. However, health reform has brought radical changes in the industry of health insurance, including how employers can use CRH. Now the question is, how an HRA work for a small company and what are the tax benefits? 
What is an HRA?
Health reimbursement arrangements, commonly called Health Accounts repayment or CRH, is a type of Article 105 reimbursement scheme for medical expenses . CRH are IRS-approved, tax advantaged, and funded by the employer. Using an HRA tax benefits returns for employees and for employers offering the advantage.
Types of CRH
In the past, an employer could structure an HRA almost in a way that matches their performance targets health. Today, however, CRH must follow new rules of the Affordable Care Act. As such, there are three types of CRH compliant. These are:
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Integrated CRH
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Retired CRH
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One-Person Autonomous CRH
Tip: small businesses that want to pay health insurance premiums, an alternative to offer traditional health insurance, generally use a consistent health repayment plan .
How HRAs work for small businesses
HRAs allow employers to reimburse employees tax-free for qualified health expenses . To help understand how to work HRAs, here are common features of CRH
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financed by the employer -. CRH are funded solely by the employer, and can not be funded through employee payroll deductions.
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Arrangement notional -. CRH are theoretical arrangements, which means the amounts are expensed only after the employees incur approved medical expenses
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not least Contributions - Contrary to a health savings account (HSA), there is no minimum or maximum amount of money an employer can contribute to an employee HRA.
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controlled Employer - The employer defines the parameters of the HRA, and unused dollars remain with the employer - they not follow. employee to a new job
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tax savings - Because repayments occur before taxes, employees and employers often save up to 50% in combined taxes on the cost of medical expenses.
HRA Tax benefits for employers
HRA reimbursements are tax deductible to the company. For example, if the small business gives employees an allowance of $ 300 per month of HRA, the actual cost to the company is $ 300. FICA taxes / FUTA payroll are not applicable to HRA reimbursements.
HRA Tax Benefits for employees
For employees, the HRA reimbursements are 100% tax -free. HRA reimbursements are excluded from the employee gross income.
Because of that, $ 1.00 in HRA fund is worth about $ 1.50 to 2.00 $ taxable bonus (depending on the bracket imposition of the employee).
However, it is important to note that some business owners have limited the tax benefits with CRH. C-Corp owners may participate in an HRA and HRA reimbursements receive all 100% tax-free. However, sole proprietors, partners, or S-Corp shareholders with> 2% of the shares of the company usually will not receive reimbursements tax-free. These non-C-Corp owners can use the HRA platform to pay and track medical expenses. However, the HRA reimbursements must be reported to the wages of owners' / partners (on their W-2 and 1040 forms) and are subject to federal income tax.
Conclusion
There are many tax deductible features made available using an HRA. Employers and their employees to earn various tax savings. With repayments that occurred before taxes, employees and employers can save up to 50% of the combined taxes on the cost of medical expenses.
How well do you know the benefits of tax deductible HRA? Ask your questions below and we are happy to answer.
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