2024 Last-Minute Year-End Medical Plan Strategies

Small businesses with 1-49 employees should possess a medical plan. The tax law does not require a medical plan for employees if your business has 49 or fewer employees, but you should. Here is why.

The tax rules for medical plans are straightforward for businesses with less than 50 employees.

When you have your spouse as your sole employee in a proprietorship, then the great rule calls the 105-HRA family medical plan that’s exempt from the Affordable Care Act. The article describes the six medical plan strategies. Read on…

1. Claim the Coronavirus sick and family leave tax credits

Tax credits give you dollar-to-dollar tax benefits. This is some real money. For instance, if you have no employees, your tax credits add upto $32,220 in sick and family leave refundable tax credits for 2021. For corporations, you qualify for sick and family leave credits, and it could be big numbers.

Even if you have already filed 2021 tax returns, there is no problem. If you have credits, amend that return. Depending on your business entity, there is time. March 15, 2025, could be the last day to amend your 2021 return.

2. Reimburse Section 105 expenses now

For sole owner-operators, consider the Section 105 medical reimbursement plan. The plan works for:

- The Schedule C taxpayer with no employees other than their spouse and
- The C corporation where the taxpayer is the only employee.

If you have a Section 105 medical reimbursement plan, make sure the reimbursements take place before midnight on December 31 so they qualify as business deductions this year.

3. Reimburse QSEHRAs before December 31

If the Section 105 plan described does not work and you have fewer than 50 employees, the QSEHRA is a good option. The 2024 inflation-adjusted QSEHRA limits on reimbursements for individually purchased health insurance and out-of-pocket medical expenses are $6,150 for self-only coverage and $12,450 for family coverage.

If you don’t have a 2024 plan in place and want a January 1 start date, the IRS can assess a penalty of $50 per employee for failing to give written notice to employees at least 90 days before the start of the QSEHRA.

The QSEHRA is a winning fringe benefit compensation strategy for the small business owner:

- You deduct the medical reimbursements to the employees as a business expense and don’t owe payroll taxes on the reimbursements
- Your employees pay neither income taxes nor payroll taxes on the reimbursements.

4. Reimburse ICHRAs before December 31

The presidential executive order created a new health plan effective for 2020, and later, that’s available for employers of all sizes.

An ICHRA allows you to reimburse employees for individually purchased health insurance premiums and other medical expenses. It also requires employees to be covered by individual health plans rather than through group coverage.

5. Comply with S Corporation Rules for Health Insurance deductions

If you own an S corporation, ensure you comply with these two requirements before December 31.

- The S corporation has either paid for your health insurance or reimbursed you for the cost of the insurance
- The S corporation includes the cost of your health insurance on your W2.

There is time to get your S corporation health insurance on both the corporate books and your W-2, but be quick.

If you, the owner-employee of your S corporation, don’t run your health insurance premiums through your S corporation, you get no above-the-line deduction on your Form 1040. Deduct the insurance as an itemized deduction subject to the 7.5 percent of adjusted gross income floor, which means either a limited or no deduction for your health insurance.

6. Claim the health insurance tax credit

If you are an Affordable Care Act-defined small employer, and you are about to cover your employees with group health insurance, you can claim a tax credit of 50 per cent in tax years 2024 and 2025.

To qualify for the credit with your group health insurance plan, you must cover at least 50 percent of the cost of individual health care coverage for each employee.

You earn full credit when you have 10 or fewer full-time equivalent employees, and those employees have average annual full-time equivalent wages of less than $25,000. If you have more employees and/or earnings are higher, then the tax law phases out part or all of the credit.

You may not claim health coverage you give to yourself, your spouse, or other specified relatives.

Here are some planning thoughts:

- If you earned the credit in 2021, 2022 or 2023 but failed to claim it, file an amended return now.
- If you plan on providing health insurance for your employees and have not yet done so, you need to hurry to earn that 50 percent credit this year. On the other hand, you might want to start in 2025 so you have a full year of payments eligible for the credit.
- The 50 percent tax credit is huge and could be a great incentive. However, group health insurance is expensive; you only get subsidies for two years. After that, you are on your own, and the cost of group health insurance will likely continue to increase.

BergerCPAFirst, with over 30+ years of experience, offers comprehensive tax preparation services for individuals and businesses nationwide. Our commitment is to provide personalized attention while ensuring compliance and maximizing tax benefits. If you have any questions or would like to schedule a consultation, please call (201) 587-9200 or send us an inquiry.