What are the benefits and advantages of a Section 105 Medical Reimbursement Plan?

February 4th, 2014 at 5:47 PM

Section 105 Medical Reimbursement Plans provide small business owners the opportunity to offer tax-free benefits without the costs related to group health insurance. This article provides a brief overview of this most often overlooked tax reduction strategy.

Tax Law

The tax law states that a taxpayer may deduct all the ordinary and necessary expenses to operate your business, including a reasonable allowance for salaries and other compensation for personal services. The IRS Regulations expand on other compensation to include:

• Sickness
• Accidents
• Hospitalization, and
• Medical expenses

Tax-Free Fringe Benefit

Section 105 makes the benefits to this employer provided health care plan a tax-free fringe benefit to the employee. The care that qualifies for the tax-free treatment may be for the employee, the employee’s spouse, and the employee’s dependents.

Spectacular Results

What makes the Section 105 Medical Reimbursement Plan so spectacular is the tax deduction for the business under IRS Code Section 162, combined with the tax-free benefit to the employee.

Example

You are the owner of a business and your spouse is your employee. You cover your spouse with a Section 105 Medical Reimbursement Plan. Here is the result:

• You, the employer, deduct the medical expenses as a business expense
• Your employee-spouse obtains the medical benefit as a tax-free fringe benefit

You cannot find a better tax shelter, and its all legal, if set up properly.

There are many other advantages of the Section 105 Plan that include:

• Predictable Costs
• Easy Administration
• Plan Flexibility
• Expands greatly on the proposed 2014 health reform

 

Most often, small business owners are not health insurance experts, nor do they want to spend time in this area. By working with a competent CPA, who is knowledgeable in tax reduction strategies, this Plan can be initiated immediately.

Philadelphia CPA, LLC actually provides an approved Plan document for our clients as well account for the approved employee reimbursements. Please feel free to contact with as additional questions on the Section 105 Medical Reimbursement Plan for your small business.