The Cures Act brings Tax Relief to Small Business Owners

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Jason Westphal, Legislative Analyst for Total Administrative Services Corporation (TASC), details how the new Cures Act legislation will bring tax relief to small business owners in the form of Health Reimbursement Arrangements (HRAs).

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SBHRAs provide a tremendous opportunity to those small employers (more than one but fewer than 50 eligible employees) who do not offer Group health but want to assist their employees with ever rising healthcare costs.

H.R. 34 containing provisions that establish Small Business HRAs (SBHRA) was signed into law by President Obama on December 13, 2016.

Beginning January 1, 2017, qualified businesses that establish SBHRAs will be able to use tax-advantaged funds to reimburse employees for individual health insurance premiums and family out-of-pocket medical expenses. (Note: This change does not affect one-employee, integrated, or Limited Purpose HRA Plans that are already compliant with federal law.)

According to Jason Westphal, Legislative Analyst for Total Administrative Services Corporation (TASC), “SBHRAs provide a tremendous opportunity to those small employers (more than one but fewer than 50 eligible employee) who do not offer Group health but want to assist their employees with ever rising healthcare costs.”

Highlights of the Cures Act legislation and a SBHRA include:

  •     Employer annual contributions will be capped at $4,950 for a single employee and $10,000 for an employee with a family. These numbers will be indexed annually for inflation.
  •     Participation in the SBHRA will not disqualify participants from Marketplace subsidies (i.e. premium tax credits), but monthly HRA reimbursements will be included in income calculations for determining eligibility for any subsidy.
  •     Generally, employers must make the same contributions to all eligible employees; amounts may vary based on family status (single vs. family).
  •     Employees must have minimum essential coverage in order to participate.
  •     HRAs are solely funded by an eligible employer; they are employer-sponsored and reimbursed benefits. The employee is not allowed to contribute pre-tax dollars via salary reduction.
  •     HRAs are not pre-funded.
  •     Employers can write off insurance premiums beginning the first of the year in which they enroll. Out-of-pocket medical expenses can be written off beginning the first of the month in which the small business owner establishes the SBHRA.
  •     Unused elected amounts can be carried over to reimburse medical expenses in future years OR can be offered as a use it or lose it feature to limit the employer's liability to the current Plan Year.
  •     Medical expenses of adult children and their families may be reimbursed through an employee’s HRA up until the year in which the adult child turns 26.
  •     A traditional One Employee HRA health & welfare benefit Plan can still be implemented yet this year—resulting in federal, state, and FICA tax savings on insurance premiums for the entire year; and on out-of-pocket medical expenses for the month of December.

“IRS Notice 2013-54 issued in September 2013 limited the ability of small business owners to utilize stand-alone HRAs. Prior to this guidance, many had used HRAs to reimburse their employees for certain medical expenses using pre-tax dollars. As a result of IRS Notice 2013-14, a company with more than one eligible employee could no longer receive a tax advantage through an HRA unless it sponsored Group insurance (an expense that’s beyond many small companies’ reach) —or offered a Limited Purpose HRA (which can only provide coverage for dental, orthodontia, vision and long-term care). This new legislation overturns guidance issued in IRS Notice 2013-54 and once again allows employers with fewer than 50 employees (companies not subject to the ACA’s Employer Mandate) to utilize HRAs as a pre-tax health & welfare benefit.”

The Small Business Healthcare Relief Act was first introduced to congress in June 2015 (H.R. 2911 and S. 1698). In June 2016, the House and Senate re-introduced amended bills (H.R. 5447 and S. 3060 respectively). H.R. 5447 was ultimately incorporated into the Cures Act which was passed by the House and Senate as part of the 2016 year-end health package containing mental health initiatives, Medicare provisions, and medical research funding.
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About TASC:
TASC is an award-winning national third-party benefits administrator of tax-advantaged health benefits plans offering comprehensive services for Clients, Participants, and Providers and serving companies ranging in size from one employee to thousands. New product development, innovative tools, and outstanding transparent service keep TASC’s products and services at the forefront of third-party benefits administration.

AgriPlan and BizPlan (Section 105 HRAs) are products that fall under TASC’s Microbusiness umbrella. AgriPlan and BizPlan save small business owners an average of more than $5,000 a year on their insurance premiums and out-of-pocket medical expenses.

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Margie Letterer
TASC
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since: 02/2015
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TASC (Total Administrative Services Corporation)

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