Tax Planning With HSA’s and Medical Expenses Reimbursement Accounts

So there’s a few things that I think are interesting here that we should probably dive into a little bit further. So I think this is great. Now, first of all, can you help us understand what is a reasonable wage? Right? That sounds awfully subjective. What does that all about?

It is a very subjective task. And you could go on to the IRS website and you can download information from them and you can see that the average wage for something might be $20,000. You’re going to say to myself, that’s crazy. That is, that is one very inexpensive way to see what the reasonable compensation is. And typically when I do reasonable compensation, I’ll take a multiple of that number, but I’ll have it in a file saying this is what the average is. So we may have taken three times the average of five times the average when it comes to a medical expense reimbursement plan, it has to be you. If you have a spouse and you’re doing your bookkeeping and maybe some filing and you have $100,000 dollars worth of medical expenses, I think that’s going to be a little bit hard to justify maybe cosmetic dentistry and stuff like that at $25,000. Maybe that makes a lot more sense.

So tell me more about this medical reimbursement. You did say that this is in addition to the HSA, the health savings account though, right?

Correct. So, it’s not available to S Corporations. It’s not available to 99 percent of S corporations, let’s put it that way. It’s a Section 105 plan. It’s a very simple document and it allows you to write off all of your out of pocket medical expenses or reimburse the person that’s providing the services for you, for them and their families’ out of pocket medical expenses.

So it’s not available for S Corp’s, but it is available for LLCs, proprietors, and C corporations?

So perhaps I can imagine there’s a physician listening out there that does locums where they’re getting paid by a 1099 as an independent contractor as they go from hospital to hospital. How do you think–could someone that does that ended up paying their spouse $5-10,000 as a way to–as a reasonable wage for helping keeping track of the books for example?

That is a very reasonable wage, you know, for that type of work. And then basically they’re not getting a paycheck. What they’re doing is they’re getting into medical expenses reimbursed.

Interesting. So it’s not that they don’t get paid W-2 income.

Correct. You don’t issue a W-2; you don’t pay social security tax on that money. It’s a straight deduction.

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