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Medical Reimbursement - Section 105

The "Benefits" of Section 105 Plans

Section 105 of the Internal Revenue Code may very well be one of the "best-kept secrets" for managing your company's health care costs. The medical reimbursement plans allowed under Section 105 provide sole proprietors, partnerships, C corporations, and limited liability companies (LLCs) a full tax deduction for employee medical benefits. 

This includes premiums paid to fund employee/dependent health insurance and other non-insured medical expenses (e.g., dental and vision care). As a small business owner, finding the right combination of employee benefits and tax savings is important to your company's cost management strategy.

A self-insured medical expense reimbursement plan is treated as accident and health insurance under section 105(e). Thus, medical expense reimbursements that are paid under a plan are excludable from the employee’s gross income under section 105(b). However, reimbursements of medical expenses incurred prior to the establishment of a plan are not paid or received under an accident or health plan. Therefore, those amounts are not excludable from an employee’s gross income under section 105(b).

For More Detailed Information On This Strategy - Click HereFor legal counsel's 'instructions and considerations' review - Click Here.

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For IRS clarification on Section 105 self-funded medical reimbursement plans see Rev. Ruling 2002-58 and Rev. Bulletin 2003-38

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Monday, October 21, 2013 09:58 AM

 

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