A medical reimbursement plan does exactly that. It provides a way for a company to reimburse its employees for their out-of-pocked medical expenses. The monies that the corporation reimburses its employees isn’t considered a taxable benefit to the employees, so they aren’t going to pay tax on those payments. But even better, reimbursements made by a corporation are tax deductible for the corporation!
You must be operating through a C Corporation to implement a Medical Reimbursement Plan. This type of plan isn’t available to flow-through entities.
Don’t confuse this with a traditional medical insurance or an HMO plan, because it isn’t. A medical reimbursement plan reimburses employees and anyone else covered under the plan for medical expenses. How much those employees are reimbursed and for what are all things that you determine in the plan …it’s a very open-ended concept. For example, some companies put a yearly cap on the amount that can be reimbursed, while others limit the types of things that can be reimbursed.
Traditional areas of coverage under a Medical Reimbursement Plan are co-pays, and dental, eye-care, orthodontic and therapeutic massage expenses. But you can choose to offer more or less. This can be especially helpful if you are operating your own business and you have a family member with a pre-existing condition, who is unable to obtain medical insurance from a regular carrier.
One important thing to remember is that you must offer the same plan to everyone. You can’t have one plan for you and your family, and another plan for your other employees. Also, generally speaking you must offer the plan to all of your full-time employees.