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What does the IRS say?
Why haven't I heard of this type of plan before?
How do I coordinate this benefit with my tax professional?
Can I do this on my own?
Do I need to offer this plan to my employees?
Are medical expenses incurred prior to establishing an Association 105® Health Reimbursement Arrangement (HRA) eligible for reimbursement?
What happens if my employees submit more expenses (or fewer expenses) than the benefit maximum?
What is the difference between a carry forward and carry over?
What does the IRS say?
The Association 105® HRA is based on several sections of the Internal Revenue Code, including Sections 105, 106, 162, 213, and Revenue Ruling 71-588. In 1994, the IRS issued a National Office Technical Advice Memorandum regarding this plan. In 1999, the IRS Industry Specialization Program offered a coordinated issue paper regarding Section 105. The latest information released by the IRS was Revenue Ruling 2002-41, Notice 2002-45, and Revenue Ruling 2003-102.
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Why haven't I heard of this type of plan before?
Section 105 of the Internal Revenue Code was written in 1954 in an attempt by the government to encourage small businesses to provide benefits to their employees. With health care costs on the rise in recent years, the HRA has become more widely utilized. With the tremendous amount of savings this plan offers, thousands of small businesses across the United States have adopted it in an attempt to combat the rising costs of health care.
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How do I coordinate this benefit with my tax professional?
BASE® Benefit Specialists work very closely with tax professionals (and health insurance agents) to bring the Association 105® HRA to those who qualify. Most tax professionals rely on third-party expense administrators, like BASE®, to properly establish and maintain an HRA for their clients.
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Can I do this on my own?
Legally, any individual could administer an HRA for their business. However, you will need to be familiar with hundreds of pages of tax code
and supply all the legal documentation required by the Internal Revenue Service, Department of Labor, the Employee Retirement Income Security Act.
You must also carefully adhere to state
insurance regulations and have a third-party adjudicate your annual medical expenses. With over 3,000 accounting firms utilizing BASE® to administer this benefit plan to their clients, shouldn't you too?
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Do I need to offer this plan to my employees?
An Association 105® HRA must be offered to employees who meet the Department of Labor eligibility criteria. In most cases, full-time employees who are 25 years (or older) must be included in your plan. Please contact a BASE® Benefit Specialist for full details about employee requirements.
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Are medical expenses incurred prior to establishing an Association 105® HRA eligible for reimbursement?
Medical expenses (including health insurance premiums) incurred prior to your enrollment in an HRA are not eligible for reimbursement. Only those expenses incurred after you establish a plan can be included. The IRS reiterated this position in a document published in March 1999 titled "Retroactivity". The IRS also issued Revenue Ruling 2002-58 to address issues caused by some plans that were still out of compliance.
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What happens if my employees submit more (or fewer) expenses than the benefit maximum?
With an Association 105® HRA, employees are able to carry forward unused benefit amounts to subsequent plan years up-to the maximum carry forward amount established by the employer at the onset of the plan administration. In situations where an employee incurs more medical expenses than the plan allows, the additional expenses can be submitted for reimbursement in subsequent plan years.
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What is the difference between a carry forward and carry over?
Carry forward refers to the amount of unused benefit from the current year that you can add to the next year's benefit limit. For example, if you were given $5,000 for 2006, but used only $4,000, that unused $1,000 can be carried forward to your benefit limit for the 2007 plan year.
Carry over refers to approved expenses that exceeded your benefit limit in the current year. For example, in 2006 your benefit limit was $5,000, but your year-end reimbursed expenses were $5,750. This means you had an additional $750 in expenses for 2006 over your benefit limit. Those expenses will carry over to 2007 reducing your benefit limit to $4,250.
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NOTE: Insurance regulations may prohibit the reimbursement of health insurance premiums in your state. For additional details, please contact a BASE® Benefit Specialist.
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