Did you know that as of January 1st, a small business or church with less than 50 full-time employees can reimburse pastors or employees for their healthcare insurance costs? This is done through a Health Reimbursement Agreement and is not taxable income to the employee (and does not incur payroll taxes for the employer as well). These conditions must be met to qualify as a Health Reimbursement Agreement:
• HRAs are funded solely by the employer and not through salary reduction.
• HRAs cannot be part of a cafeteria plan and must be treated as a separate issue.
• Non-discrimination rules apply and all employees who are full-time (30 hours or more per week) must receive the same benefit.
• HRAs may only be used to reimburse employees for medical care for themselves, their spouse or their dependents.
• Reimbursements can only be made for substantiated medical care expenses.
• Distributions from the HRA for health insurance premiums are limited to $4,950 for an individual policy and $10,000 for family coverage. The HRA can also reimburse other out-of-pocket medical expenses.
Any “unused” funds can be carried forward to increase the reimbursement amount available in the following year. The “use it or lose it” rule would not apply.
Distributions of HRA funds to reimburse or pay an employee’s medical expenses are not taxable for federal, state or self-employment.
This is great news for small businesses that cannot afford and are not required to provide group health insurance coverage but wish to provide a non-taxable benefit to their employees to help offset their healthcare costs.