I thought a self-employed person could not participate in an HRA or medical reimbursement plan?

In order for you to receive a deduction for your medical expenses you will have to create an employer/employee relationship with your spouse.

How many hours does my spouse have to work in the business for the HRA to be effective?

There is no minimum requirement however, we suggest that a fair and reasonable compensation be established.  If your spouse only works 5 hours a week in the business a 40,000 compensation package would not be "fair and reasonable".

What kind of record keeping on my part is required?

You will be paying the spouse a salary so the same rules apply as if you were hiring non family employment.

What kind of documentation is required each year to keep the plan in compliance?

There are three basic parts to an HRA:

The Plan Document

The Adoption Agreement

The Summary Plan Description

The 105 Concepts PAC that your tax or financial professional has access to will make sure your plan documentation is in compliance.

Are there limits to the amount of expenses that can be reimbursed?

The limits fall into the "fair and reasonable" compensation schedule, your tax or financial professional will help you decide on the proper limits.

I file a Schedule C, but I am not married, will this work for me?

No, you need to show an employer/employee relationship in order to deduct your medical expenses using an HRA. If you are incorporated you are already an employee so you do not have to hire spouse.

I have other employees besides my spouse, will an HRA still work?

Yes, but be careful because whatever benefit you provide to your employee spouse must be offered to eligible employees.  Your tax or financial professional will assist you in setting up plan guidelines.

Should there be an employment agreement between myself and the employees?

If you are self-employed one of the ways that you can further show evidence of an employer/employee relationship with your spouse is by creating an employer/employee agreement.

How often should I revise the agreements?

Revision is necessary only if job descriptions change.

If I am incorporated do I have to prove my employment?

Typically as a corporate business owner you do not have to prove evidence of being employed.  An employer/employee agreement is optional for corporations.

What is an HRA?

A Health Reimbursement Plan is an accident/health plan.

How long have HRAs been around?

Since the mid 1950's.  They were first named medical reimbursement plans.

Can I use an HRA with other types of benefit plans?

You can have an HRA with an HSA and an FSA.  However, there are rules and limitatations to the types of HRA. 

Can an employee contribute to an HRA?

No, if an employee contributes it becomes a salary redirection plan or a 125 Cafeteria Plan.

Is there a limit to the carry over in an HRA?

Most of the time your tax and financial professional will probably establish a carry over limit.

Does an HRA plan need to be in writing?

A self-insured HRA should be in writing, it is a discriminitory plan therefore, it should have written guidelines to protect the employee and the employer.

Do I need a special health insurance plan in order to use an HRA?

No, you can use whatever insurance you currently have.

Who is deemed the administrator for these types of plans?

As a welfare-benefit plan, you or an employee are the named administrators.

How does an HRA work with an HSA?

According to IRS Rev Ruling 2004-45 an HSA can only be used with a Limited Purpose HRA, which reimburses for permitted insurance, vision, dental, and preventive care.

What is the difference in tax savings between an HRA and an HSA?

Typically an HSA only allows a Federal deduction, however in some states you can deduct the state tax.  The HRA is a business expense which allows for a deduction from Federal, State, and FiCA taxes.

What is permitted insurance?

Health and accident insurance and long term care insurance.

What is preventive care?

Preventive Care is:

• Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals.

• Routine prenatal and well-child care.

• Child and adult immunizations.

• Tobacco cessation programs.

• Obesity weight-loss programs.

• Screening services. This includes screening services for the following.

  1. Cancer.

  2. Heart and vascular diseases.

  3. Infectious diseases.

  4. Mental health conditions.

  5. Substance abuse.

  6. Metabolic, nutritional, and endocrine conditions.

  7. Musculoskeletal disorders.

  8. Obstetric and gynecological conditions.

  9. Pediatric conditions.

  10. Vision and hearing disorders.

Are there any other types of HRAs that can be used with an HSA?

• Suspended HRA. Before the beginning of an HRA coverage period, you can elect to suspend the HRA. The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. When the suspension period ends, you are no longer eligible to make contributions to an HSA.

• Post-deductible health FSA or HRA. These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met.

• Retirement HRA. This arrangement pays or reimburses only those medical expenses incurred after retirement. After retirement you are no longer eligible to make contributions to an HSA.

How do I know your plans are kept in compliance?

Our benefit plan attornies make sure that the plans are compliant, if there are any questions on types of plans, eligibility requirements or medical expense elections our team will research it. 

Is there an audit guarantee?

The audit guarantee is for the plan documentation:

Summary Plan Descriptions

Plan Document

Adoption Agreement

Plan guidelines.

Can I change plan parameters any time I want to?

You do not have access to change plan parameters only your tax and financial professional can do this under proper guidelines.

How often should my plan be reviewed?

We suggest the plan be reviewed each year to provide for changes in plan design.

Who reviews the medical expenses?

Where can I find a complete listing of eligible expenses?

IRS Publication 502

Am I required to provide receipts to my tax or financial professional?

You do not have to provide receipts, however in some instances your tax or financial professional may request the actual receipt.