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Ask The Experts: Health Reimbursement Arrangement
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Q: My wife has a small janitorial business with three part-time employees. The only benefit offered is a health reimbursement arrangement for one of her employees (I am that employee).
We are currently bidding on our first large contract, which will require a full-time employee. What benefits are we required to provide to this full-time employee?
A: A health reimbursement arrangement (HRA) helps business owners, such as your wife, make medical expenses tax deductible for the business and provides the benefit to employees tax free. In your case, the HRA your wife set up allows you to deduct your family’s health expenses.
A key feature of an HRA is that it is non-discriminatory, meaning that all employees are eligible to benefit from the HRA you have in place for your business.
There can be differences for part-time employees versus full-time employees. For example, you can exclude part-time employees from participating in the plan or provide them with a different benefit level. However, if your plan indicates that you will reimburse medical expenses up to a set amount for employees, then all employees get the same benefit. The benefits cannot be available solely for the owner or owner’s spouse.
Your wife is not required by law to offer or pay for group health insurance coverage through the business for the new full-time employee that she will be hiring. However, this new employee will be able to obtain reimbursement for medical expenses from your wife’s business based on what you have written out in your current HRA. If your wife’s HRA indicates that her business will reimburse all medical expenses including premium costs, then that same benefit has to be offered to the new full-time employee.
If you have created your plan through the NASE’s HRA benefit, I recommend that you contact our HRA consultants at 888-650-6273 or nasehra105@nase.org. They can provide you with additional guidance available for free.
- Taxes
- Health care expenses
- Financial issues
- Employee relations
- Accounting rules
- And much more
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