Are you curious about the options available for health insurance for self employed people? If you own a business that brings in income but you have no employees, you’re considered self-employed. You're likely either a sole proprietor or a single-member LLC. You may have more options than you realize, and they’re more affordable than you might think! We’ll walk you through what you need to know.
Health insurance for self-employed
The HRA option of health insurance for self employed
A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis.
The use of new reimbursement models like QSEHRA and ICHRA puts the employer's reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements.
The two main types of HRAs
QSEHRA: The Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want. Reimbursement amounts can vary based on age and family size.
ICHRA: The Individual Coverage Health Reimbursement Arrangement has all the same benefits as QSEHRA, but with no maximum contribution limits and no company size limit. In addition to the flexibility of varying rates based on age and family size like QSEHRA, the hallmark feature of ICHRA is that benefits can be scaled across different classes of employees. An ICHRA can also be integrated with a group plan, which is another distinction.
HRA requirements for health insurance for self employed
Whether or not self-employed owners can participate in an HRA depends on how the plan and business are set up.
In order for a business owner to participate in an HRA, they must be considered an employee of the business.
- C- Corps are legal entities separate from the owners. Under a C-corporation the business owner and dependents can utilize an HRA!
- S- Corps prevent businesses from being taxed by passing any profits and losses through shareholders personal income tax returns. Because of this set-up an S-Corp owner that owns more than 2% of the company is considered self-employed and not an employee. The bad news? Since S-Corp owners are not employees, they typically cannot participate in an HRA. The good news? Self-Employed individuals can already deduct some health insurance expenses without an HRA.
- Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. The Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the HRA as a dependent of the spouse.
- Sole-Proprietorships are unincorporated businesses owned and operated by one individual with no distinction between the business and owner. The owner is not an employee and will not qualify for the HRA unless their spouse is a W-2 employee, then the owner can access the HRA as a dependent of the spouse (for QSEHRA only).
If you’re self-employed with no employees and you’re married, this post walks you through the steps you can take to participate in an HRA.
Take Command can help!
Hopefully we've been able to shed some light on your options. We have a ton of excellent resources available to you, including FAQ pages for the ICHRA and QSEHRA.
While we always advise our clients to speak with their CPA before jumping in, we are ready to chat on our website if you have any specific questions about your business and how HRAs could help. Setting up a small business HRA or setting up an ICHRA is simple and quick, and our team is here to help if you need it. You can chat with one of our team of experts anytime!
