BUSINESS

Employer-paid plan, used car donation have tax benefits

Practice Pointers. By Cathy B. Goldsticker, AMNews contributor. Sept. 16, 2002.

Answers to questions about the business side of your practice

Question What is a health reimbursement arrangement? What type of income tax benefits do they provide for my practice of two doctors and 10 employees?

Answer An HRA, sometimes referred as a defined contribution health plan, is merely an employee medical benefit plan established to provide medical reimbursements to employees and their spouses and dependents. It is used primarily to pay employee medical care expenses that are not covered by your existing health care plan, such as co-payments, high deductibles and noncovered expenses.

An HRA is not advantageous if you wish to pass on the medical care costs to your employees instead of the practice, but you may find it a helpful way to offset your employees' medical costs on a limited scope.

An HRA cannot be a Section 125 Cafeteria Plan or flexible spending arrangement in which the employees redirect a portion of their salary to pay for medical expenses with pretax dollars. It is funded solely with employer dollars.

Your practice would make tax-deductible payments into the "medical account" to be used for medical expenses for substantiated employees, their spouses and dependents.

The employee will not have taxable income for the medical benefits received as long as he or she was not given a choice of receiving cash or this benefit.

If the HRA is a self-insured medical expense reimbursement plan, there are nondiscrimination rules that must be followed. The funds are placed in the medical account of the employee, and the employee is able to carry over any unused funds to a subsequent year. [...]

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