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Health Reimbursement Arrangements: Tax Savings for Employers and Employees

  • 28 October 2014
  • Author: Cari Holbrook
  • Number of views: 2504
Health Reimbursement Arrangements:  Tax Savings for Employers and Employees

Don’t allow new legislation to scare you away from providing a Health Reimbursement Arrangement (HRA) for employees.  As long as employees are also enrolled in other primary group coverage that complies with the Affordable Care Act, HRAs can offer tremendous cost—and tax—savings with other benefits for both employees and employers. Here’s why:

1.     HRA contributions are made exclusively by the employer to the employee but are not considered part of an employee’s compensation. This allows both employer and employee to avoid payroll and income taxes. It’s a win-win!

2.     Employers can choose the maximum annual reimbursement amount for each employee.

3.     Unused HRA funds remain with the employer if the employee leaves the company.

4.     No long-term commitments are required: Employers can decide annually whether or not to renew.

5.     Plan designs are flexible. The employer can decide which wellness and preventive care resources will be covered under the arrangement, based on general employee needs. For instance, the employer can choose whether or not to include dental, chiropractic or mental health options.

The tax savings alone is enough reason to look into HRAs, but these added benefits may help keep employees happy and healthy as well, which can help you avoid turnover. There are plenty of guidelines to follow, of course, so be sure to investigate thoroughly with your healthcare benefits advisor. Be aware that, currently, annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) cannot exceed $6,350 for self-only coverage and $12,700 for family coverage. It’s also important to note that HSAs are available only to employees. If your business is an LLC, or you are set up as an S Corp and you own a 2-percent or more share, you—as the business owner—are not eligible to participate.

Contact us to help you weigh the pros and cons of your current business structure against opportunities like HSAs for tax savings.

Image Copyright:  almoond / 123RF Stock Photo

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