Fringe Benefit Plans and the PPACA
Tax Savings for the Small Business Owner
Agenda
•
Why using the right plan is important
•
Rising cost of healthcare
•
One employee - IRS Section 105 & HRAs
•
Where and How do HRAs work?
•
Multiple employee / individual health plans
•
Simple FSA
•
Summary of Benefit Plans usage
•
Examples
•
Questions
Rising cost of healthcare
•
According to The Kaiser Family Foundation’s Employer
Health Benefits Annual Survey published in 2013, and
titled, “Cost of Health Insurance,” the average annual
premium for family coverage in 2012 is $15,745
•
There has been an increase in average family premiums of
134% since 1999
Rising cost of healthcare
•
One in five families reported they experienced serious
financial problems due to family medical bills in the past 12
month period.
•
27% put off or postponed getting needed medical care.
•
34% reported skipping dental care or checkups.
Rising cost of healthcare
•
2.3 trillion* in 2008
•
$4.6 trillion* by 2019
•
Every year more and more Americans lose their
health insurance for one simple reason: they can’t
afford it.
*Source: Centers for Medicare & Medicaid Services
“National Health Expenditure Projections
2009-2019” – November 1st, 2010
HRAs are alive and well!
•
Are employer-sponsored HRA Plans still legitimate?
What is a HRA?
•
Converts normal insurance and out-of-pocket
expenses into an employee benefit program and
becomes 100% deductible!
•
What is a Section 105 HRA?
•
Section 105 is a 1954 tax law that allows for family
employment
Who Qualifies for a HRA?
•
Business with 1 “benefits-eligible” employee
– Benefits eligible - employees may be excluded if they are:
• Part-time: working less than 25 hours per week
• Seasonal – working fewer than 7 months per year
• Are less than 25 years old
• Have been employed for less than 36 months with the business
•
Basic HRAs cannot be used with more than 1 benefiteligible employee unless integrated with a group
insurance plan
What Business Entities Qualify?
•
Sole Proprietor
•
Partnership
•
C-Corporation
•
Non-Profit
•
Limited Liability Company
•
S-Corporation
How do HRAs work?
15.0 %
5.2 %
15.3 %
35 %
Federal tax rate
State tax rate
Self-employment tax
Total tax rate
2014 Comparison
Without HRA
With HRA
Premium Deduction
100%
$9,299 x 100% =
$9,299
Federal Tax Rate
$9,299 x 15% =
$1,395
Tax Savings =
$1,395
Premium Deduction
100%
$9,299 x 100% =
$9,299
Federal, State & SE Tax Rate
$9,299 x 35.3% =
$3,255
Tax Savings =
$3,255
Non-Insured Expenses
$5,362 x 0%
=
Federal & State Tax
Tax Savings =
Non-Insured Expenses
$5,362 x 100% =
Federal, State & SE Tax
Tax Savings
Total Expenses =
Total Deduction =
0%
$
0
$
0
$14,661
$9,299
Total Tax Savings
$1,395
Total Expenses
Total Deduction
100%
$5,362
35.3%
$1,877
$14,661
$14,661
Total Tax Savings
$5,132
Employers without Group
Insurance can still offer pre-tax
benefits
IRS Notice 2013-14
•
A company with more than one eligible employee will
no longer receive a tax advantage through a HRA
unless it sponsors group insurance
There Are Solutions
•
No Limit Plan
•
Non-Employer Sponsored Premium (NESP)
•
Non-Excepted Health FSA Plan (NEFSA)
No Limit Plan
•
2+ employees / all are family members.
•
The No Limit Plan is a self-funded health Plan that
meets all Healthcare Market Reform requirements.
•
There is no limit to the amount of insurance premiums
or out-of-pocket medical expenses that can be
reimbursed to your family-member employees.
•
The following are reimbursable expenses under the
No Limit Plan:
– Insurance premiums
– All out-of-pocket medical expenses
No Limit Plan
•
Disclaimer: No Limit Plan increases risk to the
business
– Please be aware that the No Limit Plan could expose your
business to an additional risk: having a high amount of
medical claims written off through your business.
– If you have employees who are not family members, this type
of benefit Plan is not recommended.
Non-Employer Sponsored
Premium
•
2+ employees with individual health plans
•
Section 125 Plan - Employers May Continue to
Reimburse Employees for Individual Premiums
Non-Employer Sponsored
Premium
•
The Non-Employer Sponsored Premium Account
(NESP) is designed for employers and employees to
contribute tax-free dollars toward individual health
insurance.
Non-Excepted Health FSA Plan
•
Both employers and employees may contribute taxfree dollars to help employees pay for eligible out-ofpocket medical expenses
Flexible Spending Accounts
•
Section 125 Cafeteria Plan
•
Pre-Tax Dollars
•
Flexible Spending Accounts
• Medical
• Dependent Care
• Transportation
• Insurance Premiums
•
Save between 25% and 40%
•
Reduced Payroll Taxes
Who qualifies?
•
Greater than 2% Shareholders of S-Corporations are
excluded.
•
Highly compensated employees are excluded.
SIMPLE Cafeteria Plans
•
Provides new opportunities for some owners and
highly compensated employees to participate where
they could not in the past.
•
A FSA Plan with no discrimination testing, but with a
required employer contribution.
•
For groups under 100 employees.
SIMPLE Cafeteria Plans
•
Employer contributions to a SIMPLE Cafeteria Plan
must be sufficient to provide benefits to non-highly
compensated employees.
•
Employers must choose one of the following
contribution methods:
– Uniform Contribution: A uniform percentage (at least 2%) of
compensation, whether the employee does or does not make salary
reduction contributions to the plan; or
– Matching Contribution: The lesser of 2x the employee’s annual
contribution, or 6% of the employee’s annual compensation.
Summary of Benefit Plans
Family Only
One Employee HRA Example
•
Bob and Nancy Johnson have three young children,
own a farm, and have two part-time employees.
•
Each year they have:
– $10,000 in insurance premiums
– $5,000 in out-of-pocket medical expenses
•
No additional benefit-eligible employees
•
They are able to write off all of their family’s medical
expense as a business tax deduction on their
Schedule F tax form
•
Total savings $5,250 on federal, state and selfemployment taxes for the year.
No Limit Plan Example
•
Jim and Tracy Ledger are Sole Proprietors and own a
farm.
– Their Parents work on the farm full-time and year-round.
– Jim and Tracey do not sponsor Group health insurance
•
The enrolled in a No Limit Plan as they cannot offer a
traditional HRA due to more than 1 benefit-eligible
employee
•
With the No Limit Plan, the ledgers save federal, state
and self-employment taxes on all premiums and out-ofpocket medical expenses
NESP/NEFSA Plan Example
•
Cucos Restaurant has 12 employees
– Do not sponsor Group insurance due to the cost
– The owners want to offer benefits to help attract new and
retain existing employees
•
Cucos implemented a NESP/NEFSA Plan
•
Cucos’ employees were able to reduce their taxes by
an average of 30%
•
The Plan was cost-neutral to the business because of
reduced payroll taxes (including Social Security and Medicare)
Multi-Employee Plan With Group
Insurance
•
Y&K Ranch has had an HRA for years
•
When IRS Notice 2013-54 was implemented it had no
impact on the ranch because they offered Group
insurance
•
Their Plan is considered an integrated HRA and is
compliant with the new regulations
Questions
•
Paul Cannon
– TASC Regional Director
– Total Administrative Services Corporation
– 800-422-4661 Ext. 2654