Self Employed vs. Small Business Health Reimbursement Arrangements

Now that you know what a Health Reimbursement Arrangement (HRA) is, it’s important to understand whether or not you qualify. What’s more is you will want to know whether you qualify for a self-employed HRA or a small business HRA.

Self Employed Health Reimbursement Arrangements (HRA)

Self-employed HRA users benefit by saving over $5,000 per year on their taxes by using the plan. To be considered for the plan, self-employed members must have one or less employee(s), be single entity owners of S or C-corps (with no unrelated, benefit eligible employees), or sole proprietors, single member LLCs, or partnerships.

In addition, the owner must have an employable interest (such as an employee), establish a compensation package, pay a W-2 wage monthly, reimburse medical expenses, and submit benefit expenses annually.

In order to make the self-employed HRA viable, the business owner would hire a family member (such as a spouse) and pay them a nominal monthly wage. The employed family member would pay all the family’s medical expenses from their personal account. Then, the business owner would reimburse 100% of the family’s medical expenses (including premiums and all medical expenses), along with a monthly W-2 wage, every month. At the end of each year, the employed family member would tally yearly expenses for taxes.

Small Business Health Reimbursement Arrangements (HRA)

Alternatively, the small business HRA can be used by small business with less than 20 full-time employees. Using the Health Reimbursement Arrangement Plan, qualified employees can then be reimbursed for their premiums and/or out of pocket medical expenses on a monthly basis. At the end of each year, the employee would receive recorded HRA reimbursed expenses.

What is the difference?

One of the biggest differences between the self-employed and small business Health Reimbursement Arrangement Plans is the small business plan has limits on how much an employee can be reimbursed annually (up to $4,950 for an individual and up to $10,000 for a family each year).

However, both types of HRAs are similar in that they are both tax deductible to the employer and tax free for employees.

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Have questions about Health Reimbursement Arrangements? We can help. Contact get-benefits today to learn more.