Tax

Have you established a 105-HRA, Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or Individual Coverage Health Reimbursement Arrangement (ICHRA) to reimburse your employees for medical expenses?

If so, congratulations! These HRAs are a great way to pay your employees’ medical expenses and obtain a tax deduction.

But all three types of HRAs come with a pesky IRS filing requirement: each year, you must pay a Patient-Centered Outcomes Research Institute (PCORI) fee that is used to help support the Institute.

The fee is small—currently, $3.00 times the “average number of lives covered” by your HRA during the previous plan year. There are various ways to calculate the number of lives covered.

You must pay the fee by filing Form 720 with the IRS by July 31 of the calendar year following the end of your plan year.

Paying the PCORI fee is a bit of a nuisance. But on the plus side, the fee is tax-deductible.

If you need my assistance or would simply like to discuss HRAs, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 24, 2023

As a small employer (fewer than 50 employees), you should consider the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) as a good way to help your employees with their medical expenses.

If the QSEHRA is indeed going to be your plan of choice, then you have three good reasons to get that QSEHRA plan in place on or before October 2, 2023. First, this avoids penalties. Second, your employees will have the time they need to select health insurance. Third, you will have your plan in place on January 1, 2024, when you need it.

One very attractive aspect of the QSEHRA is that it can reimburse individually purchased insurance without your suffering the $100-a-day per-employee penalty that generally applies to the employer that reimburses employees for individually purchased insurance. The second and perhaps most attractive aspect of the QSEHRA is that you know your costs per employee. The costs are fixed—by you.

Eligible employer. To be an eligible employer, you must have fewer than 50 eligible employees and not offer group health or a flexible spending arrangement to any employee. For the QSEHRA, group health includes excepted benefit plans such as vision and dental, so don’t offer them either.

Eligible employees. All employees are eligible employees, but the QSEHRA may exclude

• employees who have not completed 90 days of service with you,
• employees who have not attained age 25 before the beginning of the plan year,
• part-time or seasonal employees,
• employees covered by a collective bargaining agreement if health benefits were the subject of good-faith bargaining, and
• employees who are non-resident aliens with no earned income from sources within the United States.

Dollar limits. Tax law indexes the dollar limits for inflation. The 2023 limits are $5,850 for self-only coverage and $11,800 for family coverage. For part-year coverage, you prorate the limit to reflect the number of months the QSEHRA covers the individual.

If the QSEHRA is a plan of interest for you, please call me immediately on my direct line at 408-778-9651 so we can get your 2024 QSEHRA plan in place on or before October 2, 2023. I have in my arsenal the documents we can use to create both (a) the written plan and (b) the employee request for reimbursement.

• By Leon Clinton
• July 19, 2023

Here’s some crucial information on how to document expenses during business travel.

Corporation or proprietorship? If you operate as a corporation, the corporation should reimburse you for the travel expenses or pay for them directly. Remember, you can’t deduct employee business expenses on Form 1040 anymore due to changes brought by the Tax Cuts and Jobs Act for 2018–2025.

Tax diary for business travel? Although not obligatory, keeping a timely record of your business travel expenses is essential. This record should prove each expenditure’s amount, time, place, and business purpose.

Travel meals versus other travel expenses? Due to specific legislation, tax deductions for travel meals are cut by 50 percent, so you separate them from other travel expenses.

Receipts. You must retain a receipt or similar documentary evidence for every lodging expense and any other travel expense over $75. A receipt should establish the expenditure’s amount, date, place, and essential character.

Credit card statements and canceled checks. These can’t serve as a receipt, as they only prove payment, not the purchase. Both receipt and payment proof are required to substantiate travel expenditures.

Timely kept record. The IRS considers a weekly or more frequent log of your activities and expenses as a timely kept record.

$75 rule and cheating. Even if you don’t need a receipt for a travel expense under $75, keeping one provides a more robust and reliable proof of the expenditure.

What are travel expenses? They include costs of travel to your business destination and costs for sustaining life at the destination (lodging, meals, communication, laundry, etc.)

Submitting expenses to your corporation. If you operate your business as a corporation, you should submit your expenses for reimbursement under an “accountable plan” that conforms to IRS rules. You can submit an expense report along with the supporting receipts for reimbursement.

I hope this information provides helpful guidance on documenting and managing your business travel expenses effectively. If you have questions or need additional clarification, please do not hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 14, 2023