Q: Today, I read [NASE President] Kristie Arslan's testimony to the Senate Committee on Small Business & Entrepreneurship regarding extending the Small Business Jobs Act of 2010. I am curious to know what the difference is between the Small Jobs Act of 2010 and the HRA 105 benefit? I do not fully understand the Act but I do have a pretty good grasp on the HRA 105 and to me, they sound very similar.
A: The Small Business Job Act of 2010 was a comprehensive act that affected many more areas than just health care costs but I assume you are interested in how the bill's provisions affect the use of an HRA 105. One key provision of the bill was the expansion of the Self Employed Health Insurance Deduction. Before this bill, the Self Employed Health Insurance Deduction was only available on page one of your form 1040, so that the premiums were only useful in reducing taxable income for federal income tax but did nothing to reduce taxable earnings for Self Employment Tax. The Small Business Jobs Act extended the deduction to Self Employment Tax as well, but only for the 2010 tax year.
One of the benefits of an HRA plan does something similar to that particular part of the Small Business Job Act, in that having an HRA 105 plan, in effect, makes those premiums deductible for SE tax purposes by moving that deduction from page one of your 1040 over to your Schedule C. But the HRA 105 plan is not limited to just the health insurance premiums. With and HRA 105, not only premiums can be deductible for SE purposes but other out of pocket expenses, all qualified medical expenses in fact, can be deducted on your Schedule C. So the HRA 105 plan is still a great benefit, even if for 2010, the health insurance premiums you pay may be fully deductible even without an HRA 105 Plan.