About the Section 105 HRA / QSEHRA Health Reimbursement
This is a powerful tax strategy available to qualifying taxpayers in 2026. Consult with a Uncle Kam tax advisor to determine if you qualify and how to maximize your savings.
Learn everything about the Section 105 HRA Health Reimbursement tax strategy for 2026. Who qualifies, how to claim it, IRS rules, limits, and common mistakes to avoid. Uncle Kam helps you maximize this deduction.
This is a powerful tax strategy available to qualifying taxpayers in 2026. Consult with a Uncle Kam tax advisor to determine if you qualify and how to maximize your savings.
Common questions about the Section 105 HRA / QSEHRA Health Reimbursement — answered by Uncle Kam's tax advisors.
A Section 105 HRA is an employer-funded arrangement that reimburses employees for qualified medical expenses on a tax-free basis. The employer deducts the reimbursements as a business expense, and employees receive the reimbursements free of income and payroll taxes. Uncle Kam helps small business owners implement HRAs to deduct medical expenses that would otherwise be non-deductible.
Section 105 HRAs are available to businesses with employees. For sole proprietors and single-member LLCs, the most common approach is to hire your spouse as a bona fide employee and establish an HRA that covers the spouse (and by extension, you as a family member). Uncle Kam evaluates your specific business structure to determine the best HRA approach.
A business owner hires their spouse as a genuine employee, pays a reasonable wage, and establishes a Section 105 HRA that covers the employee (spouse) and their family members (including the business owner). The business deducts all medical expense reimbursements, and the family pays no income or payroll taxes on the reimbursements. Uncle Kam structures these arrangements with proper documentation to withstand IRS scrutiny.
A Section 105 HRA can reimburse any qualified medical expense as defined in IRC Section 213(d), including health insurance premiums, doctor visits, prescriptions, dental care, vision care, and hundreds of other medical expenses. The HRA can also reimburse insurance premiums for coverage purchased by the employee. Uncle Kam provides comprehensive lists of qualifying expenses to maximize reimbursements.
A Qualified Small Employer HRA (QSEHRA) is a newer type of HRA available to employers with fewer than 50 employees that reimburses employees for individual health insurance premiums and medical expenses. Section 105 HRAs are more flexible but have more complex compliance requirements. Uncle Kam helps you choose between these options based on your business size and goals.
Yes — a Section 105 HRA can reimburse employees for health insurance premiums they pay for individual or group coverage. This is particularly valuable for self-employed individuals who want to deduct 100% of their family's health insurance premiums as a business expense. Uncle Kam structures HRAs to maximize health insurance premium deductions.
After the ACA, standalone employer HRAs that reimburse individual insurance premiums were restricted, but the 21st Century Cures Act created the QSEHRA exception. Traditional Section 105 HRAs integrated with group health plans remain compliant. Uncle Kam ensures your HRA structure complies with current ACA requirements.
Self-employed individuals can deduct health insurance premiums on Schedule 1 (Form 1040) as an above-the-line deduction. A Section 105 HRA through a spouse-employee arrangement can deduct all medical expenses (not just premiums) and also reduces self-employment taxes. Uncle Kam compares both approaches to determine which provides greater tax savings for your situation.
Required documentation includes a formal HRA plan document, an employment agreement for the spouse-employee, evidence of actual employment (timesheets, payroll records), and receipts for all reimbursed medical expenses. Uncle Kam provides HRA plan documents and documentation templates to ensure full compliance.
C-Corp owners can establish a Section 105 HRA for all employees, including themselves, because C-Corp shareholders are treated as employees for this purpose. This is one of the advantages of C-Corp status over S-Corp or sole proprietorship status for medical expense deductions. Uncle Kam helps C-Corp owners maximize medical expense deductions through HRAs.
S-Corp owners who own more than 2% of the company are treated as self-employed for fringe benefit purposes and cannot participate in a Section 105 HRA on a tax-free basis. Their health insurance premiums must be included in W-2 wages and deducted on Schedule 1. Uncle Kam helps S-Corp owners find alternative strategies for deducting medical expenses.
Traditional Section 105 HRAs have no annual dollar limit on reimbursements — you can reimburse all qualifying medical expenses incurred by the covered employee and their family. This is one of the key advantages over FSAs, which have annual contribution limits. Uncle Kam helps you maximize reimbursements by identifying all qualifying medical expenses.
Medical expense reimbursements through a Section 105 HRA are deducted as business expenses, which reduces net self-employment income. Every $1,000 in HRA reimbursements saves approximately $141 in self-employment taxes (14.13% effective SE tax rate) in addition to income tax savings. Uncle Kam calculates the full SE tax savings from your HRA.
No — HRA reimbursements must be for medical expenses incurred after the HRA is established. You cannot retroactively reimburse expenses incurred before the HRA was set up. Uncle Kam recommends establishing your HRA as early as possible to maximize the qualifying period for reimbursements.
Unlike FSAs, HRA funds can typically be carried over from year to year. Unused reimbursement capacity simply rolls over to the next year. This makes HRAs more flexible than FSAs for managing variable medical expenses. Uncle Kam structures HRA plans to allow carryover of unused amounts.
Yes — age-based long-term care insurance premiums are qualified medical expenses under Section 213(d) and can be reimbursed through a Section 105 HRA. This allows business owners to deduct long-term care premiums as a business expense. Uncle Kam helps clients incorporate long-term care insurance into their HRA strategy.
The spouse-employee HRA strategy is legal and well-established, but the IRS scrutinizes these arrangements to ensure the spouse is a genuine employee performing real work at a reasonable wage. The strategy fails if the spouse is not actually employed or is paid an unreasonable wage. Uncle Kam structures these arrangements with proper documentation to withstand IRS review.
Medical expenses reimbursed through an HRA cannot also be deducted as itemized medical expenses on Schedule A. The HRA provides a much better tax benefit (full deduction at the business level) compared to the itemized deduction (limited to expenses exceeding 7.5% of AGI). Uncle Kam ensures there is no double-counting between HRA reimbursements and itemized deductions.
Yes — you can establish a Section 105 HRA at any point during the year, but it can only reimburse expenses incurred after the plan is established. For maximum benefit, Uncle Kam recommends establishing the HRA at the beginning of the tax year or as early as possible.
Section 105 HRAs must comply with nondiscrimination rules (cannot favor highly compensated employees), maintain proper plan documentation, and process reimbursements with appropriate receipts. The employer reports reimbursements on the employee's W-2 (or excludes them if properly structured). Uncle Kam provides ongoing compliance support to ensure your HRA remains in good standing.
Uncle Kam connects you with vetted CPAs and tax advisors who specialize in the Section 105 HRA / QSEHRA Health Reimbursement and can maximize your savings.
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