As an independent contractor, you have a lot of freedom and benefits, but also an abundance of additional responsibility. This is intimidating and worrisome, to say the least. In some cases, you don’t see the same benefits towards your bottom line, as is the case with health insurance. You can deduct 100% of your health insurance on your taxes, but this still isn’t enough. That’s why this post is a must-read. We can help you go further towards achieving greater health insurance benefits.

Hire Your Spouse

Hire your spouse as an employee. By making this change, you will provide family health insurance coverage while reducing your taxable income.

The Health Reimbursement Arrangement or HRA for short is an employer health benefit plan that reimburses employees for medical insurance and expenses. Insurance premiums, long-term care coverage, deductibles, and copays are all included.

As an independent contractor, you might be unaware of this option. That’s because we are referring to a spin-off of a plan that didn’t pass legislation until 2016. The Qualified Small Employer Health Reimbursement Arrangement, QSEHRA or the Small Business HRA, became available to small businesses on January 1, 2017.

How To Do It

To qualify for QSEHRA, you must be a business with fewer than 50 full-time employees and currently must not offer a group health plan.

Under this plan, you reimburse your employees, tax-free, with employer contributions capped at $4,950 for individuals and $10,000 for families.

If you’re still foggy on how this works, Gary Hensley created an example scenario at that I’ve included below.

Example:  John is a sole proprietor with his wife, Marsha, as his only employee.  John provides his one employee an HRA that will reimburse up to $9,000 of medical expenses per year.  Marsha uses the $9,000 to pay for health insurance premiums for a policy that she purchases, plus deductibles and co-pays not covered by her insurance policy.  Marsha purchases a family policy that also covers John as her spouse. Thus, the $9,000 is 100% deductible by John as a business expense on Schedule C and 100% excludable by Marsha as an employee benefit.

This post is meant as an informational source only. Use what you have learned to start a conversation with your accountant (the expert on the matter). If you are married, I hope that these basics will guide you on your way to more savings.


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