Some small businesses can no longer use Health Reimbursement Arrangements (HRAs) to offer pre-tax health benefits to employees

Health Reimbursement Arrangements

Employers without Group Health Insurance Can Still Offer Pre-Tax Benefits

Recent IRS changes mean some small businesses can no longer use Health Reimbursement Arrangements (HRAs) to offer pre-tax health benefits to employees. Tax Samaritan partner, TASC, introduces another option that allows employers and their employees to continue to take advantage of these tax savings.

Although IRS changes mean some employers can no longer offer pre-tax health benefits through Health Reimbursement Arrangements (HRAs), Total Administrative Services Corporation, Inc. (TASC), a national third-party benefits administrator, has a solution that allows both employers and employees to continue to save on their taxes.

Small business owners often can’t afford to pay for group health insurance coverage. In the past many took advantage of Health Reimbursement Arrangements (HRAs), which let them reimburse their employees for certain medical expenses using pre-tax dollars.

Unfortunately, as a result of IRS Notice 2013-54, a company with more than one eligible employee will no longer receive a tax advantage through a HRA unless it sponsors group insurance—an expense that’s beyond many small companies’ reach or offers a Limited Purpose HRA (which can only provide coverage for dental, orthodontia, vision and long-term care).

Many of our small business clients are concerned that they can no longer take advantage of pre-tax health benefit plans. Fortunately after countless hours of research by TASC’s legal, compliance and governmental affairs departments, they have an alternative service offering that is available to Tax Samaritan clients. TASC designed a service that combines Premium Reimbursement Accounts and Flexible Spending Arrangements (FSAs) into one tax-savings plan.

Employers May Continue to Reimburse Employees for Individual Premiums

Recent regulations do not restrict an employer (not offering a Group Health Plan) from offering a Section 125 Cafeteria Plan… meaning that an individual premium is still allowed.

Individual premiums have been classified as a qualified fringe benefit for more than a decade. The fact that a Cafeteria Plan (not a health FSA) may pay or reimburse substantiated individual accident and health insurance premiums was reiterated and clarified within IRS Notice 2013-54.

TASC’s Non-Employer Sponsored Premium Account (NESP) is designed for employers and employees to contribute tax-free dollars toward individual health insurance. And because this benefit is not considered a Flexible Spending Account, the contribution limits do not apply.

  • No $2,500 cap on employee salary reduction.
  • No $500 limit on employer contributions.

Not only can an employer who doesn’t offer group insurance reimburse individual premiums, they can also reimburse out-of-pocket medical expenses through a health FSA.

Reimburse Out-of-Pocket Medical Expenses with a Non-Excepted Health FSA Plan

Footnote #9 contained within IRS Notice 2013-54 opened the door for Non-Excepted health FSA (NEFSA) plans, “Under the interim final rules implementing the annual dollar limit prohibition, a health FSA is not subject to the annual dollar limit prohibition, regardless of whether the health FSA is considered to provide only excepted benefits.” The clarification removing the annual limit maximum prohibition is key to the benefit offering under TASC’s Non-Excepted health FSA.

Both employers and employees may contribute tax-free dollars to help employees pay for eligible out-of-pocket medical expenses with a TASC NEFSA. In addition, an employer may choose to cover dependent care and work-related transportation expenses through this plan.

At Tax Samaritan, we think small businesses will be very interested in this NESP/NEFSA combination—and comforted to know TASC maintains on-staff experts who stay on top of changing regulations and guarantees compliance.

IRS changes don’t have to limit an employer’s ability to provide pre-tax health benefits.

Health Reimbursement Arrangements (HRA)

We encourage any business owner with concerns about their benefits to click the link below to contact TASC and investigate their options.

Health Reimbursement Arrangement Section 105 Plan

About TASC (Total Administrative Services Corporation, Inc.)

TASC is an award-winning nationwide third-party benefits administrator of tax-advantaged health benefits plans offering comprehensive services for clients, participants, and providers and serves companies ranging in size from one employee to thousands. TASC has a reputation for innovation and transparent service and prides itself on helping business owners—and their employees—to improve their bottom line.

AgriPlanNOW and BizPlanNOW (Section 105 HRA) are service offerings that fall under TASC’s Microbusiness umbrella. AgriPlanNOW and BizPlanNOW save small business owners an average of $5,000 a year on their out-of-pocket medical expenses.

FlexSystem (Section 125 FSA), PayPath (Payroll Administration), COBRAToday, ERISAEdge, FMLAMatters, and DirectPay (Section 105 HRA) are Group Division products that make life easier for larger corporate employers and their human resource managers.

About Tax Samaritan

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
Click the button below to request a Tax Preparation Quote today to get started with the preparation of your US tax return.

Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

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