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Health Reimbursement Accounts (HRA) – A Way for Small Business Owners to Deduct Personal Medical Bills as Business Expenses

by William L. Pfeifer, Jr. on January 20, 2012

in Business

A Health Reimbursement Account (HRA) is a special account that businesses can provide as an employee benefit to qualifying employees (with the employer generally setting the rules for how one qualifies for coverage). Internal Revenue Service (IRS) Code Section 105 authorizes businesses to create HRAs as a benefit of employment. The HRA allows the employer to pay the medical expenses of an employee and that employee’s dependents (up to a preset amount) as part of the employee’s compensation package. The payment of medical expenses through an HRA does not qualify as income to the employee for tax purposes, and it qualifies as a legitimate business expense for the business. The kinds of expenses that generally qualify for coverage under an HRA are roughly the same as those that would qualify under a Flexible Spending Account (FSA).

How does creating an employee benefit package like this benefit the employer? When the employer is able to claim his or her spouse as an employee of the company, thereby making the employer a dependent of the employee and eligible for HRA coverage of his or her own medical bills. Rather than pay the spouse a high salary, most of the spouse’s compensation package can be given in the form of HRA coverage of medical expenses.

I have recently published an article about this program for lawyers called How to Deduct Medical Bills as Business Expenses at your Law Firm. While that article was written for lawyers, the advice and information on how the program works is the same for any small business owner. If you believe your business may benefit from having a Health Reimbursement Account, read the article for more information on how it works. If you want to discuss the program with someone who can help you figure out whether you qualify, call Kelly Erdman, Lead Microbusiness Specialist at TASC, at (800) 422-4661 Ext. 2450. TASC is not the only company that can provide this program, but they were the one we chose to set up the program at our firm and it has worked very well.

I realize this post has nothing to do with Alabama appellate law, but many of our firm’s clients are small business owners so we thought this information would be helpful to them. With tax season just around the corner, it seemed like a good time to draw attention to this great way to save money on your taxes.

Alabama State Bar rules require the following disclaimer in all attorney advertisements: “No representation is made that the quality of legal services to be performed is greater than the quality of services provided by other attorneys.”

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