As you look into setting up the QSEHRA or ICHRA, you may be wondering if you, the business owner, are eligible to participate in the plan for either yourself or family members. Owner participation rules may differ between QSEHRA and ICHRAs, especially when it comes to whether an owner is treated as a self-employed individual for federal tax purposes. The Answer: it all depends on how your business is set up!
In order for a business owner to be eligible to participate in their HRA, they must be considered an employee of the business.
C- Corps are legal entities separate from the owners. Under a C-corporation the business owner and dependents can utilize the HRA!
S- Corps prevent businesses from being taxed by passing any profits and losses through shareholders personal income tax returns. Because of this set-up a share-holder is considered self-employed, and not an employee, therefore making them ineligible to participate in an HRA. IRS rules may apply to certain familial relationships. Eligibility outcomes can vary depending upon the ownership structure, entity type, and HRA design. The owner is not an employee and will not qualify for the HRA. For an S-Corp, the owner's dependents cannot participate as a W-2 employee, either.
Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. Bottom Line: business owner cannot participate in the HRA. If the partner’s spouse is a W-2 employee (and not a partner spouse) then there may be some options available. Please consult your tax professional in these scenarios.
Sole-Proprietorships are unincorporated businesses owned and operated by one individual with no distinction between the business and owner. The owner is not an employee and will not qualify for the HRA unless their spouse is W-2 employee, then the owner can access the HRA as a dependent of the spouse. Please consult your tax professional in these scenarios.
As you can see, the way a business is set up affects if the business owner and their dependents will qualify to participate in the HRA. Take Command Health has a team of experts ready to answer your questions regarding your HRA and health insurance options.
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