Law Changes for 2013 in Health Plan Deductions

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Megan and I did a webinar this past Saturday on “How IRS-Risky Is Your First Business?” If you missed it, you can still catch it at One of the questions we received at the end had to do with MERP and HSA plans.

There have been changes this year and because there is so much misunderstanding, I think this is an important subject to cover in a special article.

Let’s start with medical insurance premiums. If you have your own business, the only time you’re going to be able to take the deduction on the business return is if you have a C Corporation.

If you have medical expenses, these are generally reported on Schedule A (itemized deductions) and unless you have a lot of them, chances are you won’t meet the minimum amount for the deduction.

Health Saving Account (HSA)

If you have a high deductible insurance plan, your company (whether you own it or someone else does) may set up an HSA plan. (Health-saving plan) The HSAs can be funded by either the employee or employer throughout the year. A key benefit for the employee is the contributions are tax deductible and they can roll over indefinitely because they are owned by the employee.

The HSA limits for 2013 are:

Individual – $3,250
Family – $6,450
Catch-up – $1,000

Flexible Savings Account (FSA)

The FSA is tied to a health insurance plan like a PPO (not a high deductible insurance plan). You are limited to just $2,500 per year in a FSA and they are “use it or lose it” type plans.

You can have either a FSA or HSA plan in your own business.

Medical Expense Reimbursement Plan (MERP)

A MERP lets your business write-off all of your allowed medical expenses (up to a predetermined limit you set) in a C Corporation. A MERP allows you to write off 100% of your medical expenses such a medical co-pays, dental, vision and the like.

An LLC that is taxed as a C Corporation can set up a MERP. Other structures, such as partnerships and S Corporations, can not.

Which is the best plan for you? The answer, of course, is “it depends.” That’s where a consultation or strategy comes in. If you’re interested in learning more about how we work with our clients, please get hold of us at .

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