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February 3, 2014

Medical Reimbursement Plan All But Canned

One of the best reasons for forming a regular or “C” corporation was the medical reimbursement plan.  Section 105 Medical Reimbursement Plans are commonly known as Health Reimbursement Arrangements (HRAs) or Healthcare Reimbursement Plans (HRPs), and can be the foundation of a defined contribution health plan.

The medical reimbursement plan allows a C corporation to pay for all the medical insurance premiums, co-pays, deductibles, and other non-covered medical expenses for its employees.  Assuming you are the only employee, this is a way to deduct 100% of all medical costs with pre-tax dollars, since this fringe benefit of your corporation is not reported as a taxable benefit.  In other words, by having the corporation pay for and deduct all your medical expenses, it’s like paying as much as 40% less by way of a tax deduction.  The C corporation can also pay for your medical expenses even if you are covered by another plan in another company (e.g., your main “employer”).  Note that ALL medical expenses are covered, not just stuff your plan would cover.  So, for example, if you have chiropractic care you pay out of pocket that isn’t covered by a medical insurance plan, that would be reimbursable by the corporation, this giving you a deduction for otherwise uncovered expense (which wouldn’t be deductible on your personal return until it exceed 10% of your AGI).

Now the bad news…

As for January 2014, the section 105 MRP is severely limited.  The new rules allow only reimbursement of medical insurance premiums and qualified “preventative care”.  This puts a huge kibosh on the otherwise huge tax savings for small business entrepreneurs.  The law did, however, create an exemption if you only have you and your spouse working for the corporation; however, getting a discounted company “group” plan may be a challenge for you as a single person working with spouse.  You will have to call around quite a bit to get the appropriate plan at the price you are looking for.  The co-pays, deductibles, and other non-covered medical is still allowed by the section 105 MRP plan.  The bottom line is the math, and for some, the Health Savings Account (HSA) may be a better route going forward.

As always, review your practices with a qualified tax and/or legal professional before proceeding.

For a good document of a medical reimbursement plan, take a look at my Bulletproof Asset Protection course.

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Attorney William Bronchick


Attorney William ("Bill") Bronchick, the host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 30+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the President of the Colorado Landlords Association. Click on the "About" link above for more information on William Bronchick.

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