Could your spouse be considered a valid employee?
Can your business use more tax deductions?
Over 20 years ago, Revenue Ruling 71-588 held that an employer could fully deduct medical benefits paid on behalf of a spouse and the spouse's dependents. This simply means that valid medical expenses, including health insurance premiums for family members or other bona fide employees are deductible. The provision itself is referred to as a Section 105 Medical Benefit Plan.For two decades, this allowance was underutilized by self-employed families. Recently, however, with skyrocketing health care costs, an increasing number are taking advantage of this provision -- and saving tax dollars as a result. Those savings can be significant in those states where a small business owner with a Schedule C or F profit and taxable income pays a minimum of 35 cents on each dollar of profit.
Any Section 105 plan must be able to stand up to IRS scrutiny. That's what we at Sogge Tax Service, Inc. can do for you. Our expertise on small business and farm tax issues makes us the ideal choice for helping you develop a sound, defensible plan for your employees. Specifically, we can help you do the following:And we do not abandon you once the plan is in place. If you encounter other administrative problems or have questions on a tax or Social Security issue, we can help you with that also, for a reasonable fee.
- Establish an employer-employee relationship with your spouse. This means:
- Paying the spouse a fair wage and making regular wage payments.
- The spouse keeps accurate records as to hours worked and duties performed.
- Completing all IRS forms required, including W-4, W-2, I-9, 941, or 943, and 940. Contact your tax preparer for more information.
- Placing the spousal employee's wage in a personal, not a business account.
- Ensure the plan in non-discriminatory:
- Non-family employees can only be excluded based on age (under 25), tenure of less than 3 years, part-time or seasonal employment, alien status, or union contract exclusion.
- Meet documentation requirements:
- Contact us and request an enrollment form for a Section 105 plan. This should be done as early in the year as possible. Plans can have an effective date other than January 1.
- Shift the medical insurance policy to the spouse's name whenever possible.
- Complete claim forms for all reimbursed medical expenses.
- Documentation you receive from us includes:
- Medical Plan Adoption Agreement
- Work agreement for your spousal or other employees
- Checklist of what you need to do and when
- Claim forms for recording reimbursed medical expenses
- Documentation explaining how this benefit works and tips on managing your plan
As one of the leading farm and business consulting firms in the upper Midwest, we are uniquely qualified to assist you. We can also help you evaluate the long term consequences of business deductions on your future Social Security benefits.
We also offer Ronald Woltjer's book, Managing Social Security. In its fourth edition, it contains unique information on developing lifetime strategies for self-employed business owners and farmers. It includes a full chapter on the Section 105 Medical Benefit Plan discussed here.
We offer two versions of the STS-105 PLANSM:
- Full-Service Version
- Self-Adminstered Version
This web site is designed to provide accurate and authoritive information in regard to the subject matter covered. Its contents alone should not be used to replace expert tax assistance. If legal or tax advice is required, the services of a competent professional should be sought. -- From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.