Section 105 reimbursement plans

[BulldogTom]

I have seen section 105 plans written so that the deductible and copays (essentially the out of pocket costs) are reimbursable to the employee. What I have never seen is one that allows the reimbursement of premium costs. Is that allowed?

Scenario is this. Sole proprietor is growing and he thinks he needs an employee. Wife would be the perfect employee. Wants to hire her, but needs to cover her for insurance. Can he get a 105 reimbursement plan and cover her health care insurance without getting the policy in his name (which is very hard to do for a 1 person company that never had employees).

Thanks,

Tom

Hollister, CA

[Guest Taxed]

Tom, unless I am missing something what would be the tax advantage here for a husband/wife Sch. C filer. He can already deduct the self employed health insurance premiums including that for his spouse and kids. I am also assuming that like typical married people their finances are comingled so the cost of insurance comes from a joint account. Co pays and deductibles could go on Ach A if they itemize and meet the threshold.

Is there some difference for community property states like CA?

[LouD]

The way Tom describes is correct - employer is hiring an employee and as such can set up the formal Sec 105 plan allowing for reimbursement of health insurance and medical expenses for the employee and all covered family members (which would include the business owner himself) which is a better deduction for the business owner as it reduces self-employment income by lowering Sch C earnings rather than the above the line SE insurance deduction.

[BulldogTom]

The issue is getting a policy in his company name. Generally, insurance companies don't like to write "group" policies for a sole proprietor business with only one employee.

The second issue is the Self Employed Health Insurance Deduction is on the front of the 1040 (reducing taxable income, but not SE Tax) and an employee benefit like health insurance is deducted on the Sch. C where it offsets both taxable income and SE tax.

The 105 reimbursement plan allows them to effectively move 100% of their health insurance costs off the Sch. A (subject to 10% of AGI haircut) and onto the Sch. C (where it offsets taxable income and SE tax).

To be most effective, the Sole Proprietor needs to get a health insurance policy that allows him to decline coverage so that his wife can pick up family coverage (covering her dependents, the husband being her dependent) so his insurance costs are moved from the front of the 1040 to the sch C via her insurance.

Tom

Hollister, CA

[Lion EA]

There are firms that specialize in 105 plans. AgriBiz or something like that is a name I've read (mom & pop farms probably started the trend).

[Guest Taxed]

Thanks. I get it now. It reduces SE tax and bypasses Sch A completely. Never ran into these plans in my neck of the woods. I don't do any C corps (yet) have quite a few partnerships and Sub S and many of these employers have CPA that advises them (I just do their filings).

Is there a boilerplate language that you need to create a sec. 105 reimbursement plan. Does it have to be filed with IRS or any state revenue depts? Sounds very interesting!