Fort Collins, CO (PRWEB) November 27, 2007 -- The last minute rush to lock
in tax deductions has many S-corp owners signing up for a Health Reimbursement
Arrangement (HRA) before the end of the year.
According
to IRS Headliner 163, the individual owner of an S corporation can only take
an above-the-line tax deduction for health insurance if the coverage is purchased
in the name of the S corporation. A lack of understanding about this
ruling has left many S-corp owners scrambling to set up an HRA
before January 1 in order to avoid paying taxes on their health insurance
costs.
"We've
had a huge surge of HRA applications the past few weeks", reports Wiley Long,
president of online health insurance retailer HSA
for America. "In fact, we've had more people sign
up for HRAs in the past month than had signed up all year."
The
ruling, which was issued last year, states in its summary that "a shareholder/employee
is not allowed to purchase health insurance in the shareholder's own name
and still obtain the above-the-line deduction benefits of IRC §162(l)."
Group coverage can be considered a legitimate business expense, but since
it is much more expensive than individual health insurance most individual
S-corp owners have individual health insurance plans. However, the deduction
for such policies must be an itemized deduction, and only premiums in excess
of 7.5% of the business's adjusted gross income can be deducted. According
to tax experts, the solution is to establish a Health Reimbursement Arrangement.
"If
the S corporation establishes a Section
105 Health Reimbursement Arrangement or HRA
plan, the business can reimburse the S corporation owner for their individual
health insurance premiums as a tax-free fringe benefit. This also satisfies
the IRS Headliner 163 requirement for a group plan", said Wiley Long, president
of HSA for America. "As an
added bonus, the S-corp owner can use the HRA to reimburse out-of-pocket medical
expenses tax-free."
The benefits of using a Section
105 HRA for the one-person S corporation include:
- the ability to establish $10,000 to $20,000 or more per year in S corporation
owner benefits for insurance and medical expense reimbursement
- 100%
above-the-line income tax deduction without the need to itemize
- 100%
deduction of the 15.3% self-employment tax which is not available without
a Section 105 HRA plan
- 100% deduction of FUTA tax which is not available
without a Section 105 HRA plan
- the ability to carryover unused funds
in the Section 105 HRA to the next Plan Year
Long added, "It is important to set up your HRA before January 1 in order
to lock in current tax deduction."
About HSA for America.
HSA
for America is the nation's leading independent health insurance
firm specializing in individual and family coverage that works with a Health
Savings Account. Through our comprehensive website we offer complete
information on HSAs and qualifying health insurance plans. We offer
instant quotes, online health insurance applications, and access to several
banks that can act as an HSA administrator for your account.
