The Medical Reimbursement Plan Kit

by Albert Aiello

What is a Medical Reimbursement Plan? A "Medical Reimbursement Plan" (or "Self-Insured Medical Reimbursement Plan" or a"105(b) Plan" or the "Plan") is first of all not a regular type commercial insurance plan. In fact, it’s not insurance at all. It is a legal fringe benefit plan that permits you to claim full deductions for reimbursing your employees (including your spouse and other family members) for medical insurance premiums and uninsured medical expenses. Why is it Valuable?

• With escalating medical expenses and premiums this is a POWERFUL deduction that can save you substantial taxes every year.
• As a 100%, business deduction it is not subject to the Adjusted Gross Income (AGI) limitations for medical expenses claimed on "Schedule A -- Itemized Deductions."
• Besides federal income taxes, the plan deductions can also reduce the nasty bite of other taxes -- Social Security, Medicare, state and local taxes.
• Your employee-spouse does not have to report the reimbursement as income
• The medical reimbursements are not subject to payroll taxes.

EXAMPLE -- WITHOUT THE PLAN: Rhonda files Schedule C. Her tax brackets are:Federal income tax - 28%, Social Security tax - 15%, state & local taxes - 5%. The sum of these are 48% which is her total Schedule C bracket. Assume that her AGI for the year is $70,000. Her, her husband and their children incur $5,200 in medical costs. As an itemized deduction on Schedule A, she would get NO deduction (and NO tax savings) because the total deduction of $5,200 would have to exceed 7-1/2% of her AGI which is $5250 [7-1/2%(.075) x $70,000].

WITH THE PLAN: If the $5,200 medical expenditures were part of a Medical Reimbursement Plan (MRP), with her spouse as an employee, Rhonda would been titled to a full business deduction which would yield tax savings of $2,500(rounded) in a 48% Schedule C bracket.
To Qualify for The Medical Reimbursement Plan, You Must: 1. Be self-employed in any legitimate business that is single a proprietorship,a partnership, a C-corporations, or an LLC. (S-corporations and husband & wife partnerships do not qualify.) The business can be a new or part-time business. Included here are rental property owners. 2. Hire your spouse as an employee and file all required payroll reports. Your spouse can be part time, even if they have another job and work elsewhere. There are no set hours, provided that there is a bonafide employment relationship between you and your spouse. You can pay your spouse quarterly and substantially reduce recordkeeping, PLUS, see below**. NOTE: However, if your business is a C-corporation, you do not have to hire your spouse. You then can be the employee receiving the plan benefits. 3. Meet IRS requirements and have the proper forms including a written "plan". (These are all contained in the Medical Reimbursement Plan Kit.) **Your spouse’s compensation does not all have to be all in wages. A significant part can paid as Medical Reimbursements via the "plan."

EXAMPLE: Your spouse works for you as a personal assistant 20 hours a week. The average normal hourly compensation (including fringe benefits) for this type of work$10 an hour. Assume your spouse will work an average of 20 hours a week over a period of 50 weeks or 1000 hours. You therefore want to pay your spouse total annual compensation of $10,000. Your spouse incurs $5,000 in medical insurance premiums and $2,600 in uninsured medical expenses. You will also pay your spouse $2,400 in wages The total annual compensation would be $10,000 as follows:$2,400 -- Salary (per W-2; fully deductible/taxable)5,000* -- Medical insurance premiums (Fully deductible/not taxable)_2,600* -- Uninsured medical expenses (Fully deductible/not taxable)$10,000 = Total Compensation

TRIPLE PLAY: Of the total compensation of $10,000, the medical insurance and expenses totaling $7,600* are:(1) Fully deductible by you as a business expense(2) Not taxable to your spouse (which also includes you on a joint return), and(3) Not subject to payroll taxes or payroll paperwork. *In a 40% (rounded) bracket, the $7600 deduction equates to tax savings of over $3000! MEDICAL REIMBURSEMENT PLAN HEALTH INSURANCE DEDUCTION¨ The plan deductions also reduce other taxes -- Social Security, Medicare, local. Only reduces federal income taxes. It does not reduce these other taxes.¨ Can deduct a 100% of other medical expenses that would otherwise (generally) be eliminated by the 7-1/2% AGI limit. Usually cannot deduct any uninsured medical expenses as they are generally eliminated by the 7-1/2 % AGI limit.¨ You are not subject to the net income limitations.*The health insurance deduction is limited by being subject to net income limitations.*[*That is, if your business shows a net loss, you are not entitled to the health insurance deduction However, you can still claim plan deductions even if you have a business net loss].Is a Medical Reimbursement Plan Legal?It certainly is. The tax law authority to support this deduction is Internal Revenue Code Section 105(b). IRS Revenue Ruling 71-588 also supports Code Section 105(b).

The Medical Reimbursement Plan Kit Includes the Following: · THE NECESSARY FORMS -- Easy-To-Use· STEP-BY-INSTRUCTIONS FOR THE FORMS -- Easy-To-Follow· STEP-BY-STEP PROCEDURES TO FOLLOW -- In Plain Language· RULES FOR MEDICAL PLAN DEDUCTIONS -- In Plain Language, PLUS: THESE FREE SPECIAL BONUSES:* A CHECKLIST OF OVER 100 MEDICAL DEDUCTIONS -- Many overlook...big ones... many not covered by insurance!