As a business owner, you may consider providing your employees health benefits through a Health Reimbursement Arrangement (HRA). As you look into setting up the HRA, you may be wondering if you, the business owner, are eligible to participate in the plan for either yourself or family members. The Answer: it all depends on how your business is set up!
In the past, small business owners with fewer than 50 employees were not eligible to participate in HRAs but now there is small business HRA designed just for you called a QSEHRA.
QSEHRA allows small businesses to reimburse their employees for individual health insurance tax-free.
Is a small business owner eligible for QSEHRA?
In order for a business owner to be eligible to participate in a QSEHRA as an alternative to small business health insurance for owners, 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 the QSEHRA!
- 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 the QSEHRA. The good news? Self-Employed individuals can already deduct some health insurance expenses without a QSEHRA (scroll to page 21 of this PDF for more details). We strongly recommend S-Corp owners talk to their licensed tax professional or CPA.
→ Read more about S-Corps and QSEHRA - 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 W-2 employee, then the owner can access the HRA as a dependent of the spouse.
Still have questions about QSEHRA owner eligibility?
As you can see, the way a business is set up affects if the business owner and their dependents will qualify to participate in the small business HRA. Take Command has a team of experts ready to answer your questions regarding your HRA and health insurance options.
Hungry for more? Check out the requirements chapter in our handy QSEHRA Guide!
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