Owners who are “self-employed individuals” within the meaning of Internal Revenue Code Section (IRC) 401(c) aren’t considered employees for this purpose. Therefore, these specific owners are ineligible to participate in an HRA on a tax-favored basis.

Is a sole proprietor their own employee?

As the owner of a sole proprietorship you’re not considered an employee of your own business. This means you don’t receive a paycheck or W-2 Form or have taxes withheld from your self-employment income.

Can a business owner participate in an FSA, HSA or HRA?

There are a lot of nuances around when business owners participate in an FSA, HSA, or HRA. Navigating FSAs, HSAs, and HRAs, can be confusing so be sure to check with a tax professional to make sure you find the plan that works best for your business.

What’s the best HRA strategy for small business?

This simple example illustrates a key point—your goal as a business owner is to get as much of your and your employees’ medical expenses counted as a business expense as legally possible. At the very least, you should keep records so you can take a deduction. As you can imagine, the tax implications only grow as your business grows.

Can a sole proprietorship contribute to an FSA plan?

As a business owner, the IRS states you can’t contribute to an FSA plan if you own 2% or more of the company and are an LLC, PC, sole proprietor, partner, or have a schedule S corporation. If you own a C-corporation, however, you may participate in an FSA plan because the IRS considers you a W-2 common law employee.

What kind of health insurance do I need as a sole proprietor?

If you are a sole proprietor or freelancer (meaning you have no employees), you have two main options for purchasing healthcare coverage: group plans or a Health Care Reimbursement Account (HRA). However, the details are a bit nuanced. Purchase insurance as a “Group of 1”: This option is only available in about half of all states.