Instead to contribute? to cover the employer health insurance, small employers are implementing Section 105 medical reimbursement plans to reimburse employees for individual coverage health insurance. In this FAQ article we will answer a question frequently asked by small employers: "? Are Section 105 tax-deductible plans "
Note - posed this question during our recent webinar " Can free work repayment premium tax for you? " If you want to download the webinar and slides on request, click here.
Overview of section 105 Plans
under Article 105 of medical expenses reimbursement plan is a formal health plan offered by an employer to reimburse employees for qualified health expenses. section 105 plans are named after the tax code ( IRC section 105 ) that allows for tax-free reimbursement for the costs of medical care as defined in section 213 (d), including reimbursement for individual spending health insurance.
When used for the reimbursement of health insurance, the system of Article 105 shall be designed to comply all the rules and regulations [applicable, including new market reforms.
Y Section 105 Plans tax deductible for employers?
Yes. Section 105 plans are an advantage of tax-efficient employee as described in IRC section 105. For an employer, this means:
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Refunds are similar to tax deductible premiums paid to group health insurance
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payroll taxes (FICA / FUTA) are lowered
to illustrate the economies of a section 105 Plan tax advantaged compared to offer employees a tax increase, is one example.
example
With tax increase, the cost to the company for $ 300 per month allowance is $ 323 per month after FICA / FUTA payroll taxes (7.65%) are taken into account. Each year, the company spends $ 3,875 to provide tax increase $ 3.0 per employee.
the use of a plane of section 105, the cost to the company for a $ 300 monthly health care allowance is $ 300 per month . Each year, the company spends $ 3,0 to deliver a pre-tax benefit of $ 3.0.
An additional benefit to employers that employees are only reimbursed the scheme of Article 105, once they demonstrate their premium costs, and employees are reimbursed up to the amount of their allowance. For example, in the case of a $ 300 per month allowance, if the employee's health insurance costs only $ 210 per month, the plan reimburses $ 210 per month
Related :. Stipend health insurance against a repayment plan - Which is better?
Y Section 105 tax free plans for employees?
Yes. Using a plan of Article 105 employees will also save money on health care. For employees:
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Refunds are received (non-taxable income, not on W2)
- [libred'impôt
additional savings are available through premium tax credits , for eligible employees
to help illustrate the economies of a section 105 Plan favored tax, from the receipt of taxable income, here's an example.
example
With tax increase, employees pay taxes on income received. Assuming the employee is single and making $ 35,000 +, the employee will pay $ 1,175 of the $ 3,0 in taxes ($ 3.0 x 32.65% *). Each year, the company spends $ 3,875 to provide after tax ( "home") increased $ 2.425.
With a plan of Article 105, employees do not pay taxes on repayments. Because of that, $ 1.00 in section 105 of repayments is worth about $ 1.50 to 2.00 $ taxable bonus (depending on the employee's tax bracket). With Section 105 Plan, the company spends $ 3.0 annually to provide a benefit before tax of $ 3.0, which results in value to $ 5400-70 $ Employees
Related :. FAQ - Can we give employees money to Medicare?
Conclusion
repayments section 105 plans are now tax deductible and received tax free by employees . Because of these tax benefits, small businesses and employees will save on the cost of health care by using a map of the section 105.
What questions do you have on section 105 plans or tax-free health insurance reimbursement? Leave a comment below and join the discussion.
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