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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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HRA benefits for self-employed

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: Could you please clarify the following statements on you web site about the limitations of Health Reimbursement Arrangements for owner/employees of an LLC taxed as a corporation? If the LLC is being taxed as a corporation, then the two owners are entitled to participate fully in the plan. This would be my interpretation of the situation.

A: When a Limited Liability Company (LLC) files its first federal income tax return, there is an election to be treated as an S-corporation or as a partnership. You stated that in this case the business files as a corporation. This election affects other tax issues but does not affect health benefits for the principal members. "Members" are the owner/employees in this case who are treated as self-employed people for benefits tax purposes. The key issue here is that uninsured health benefits are not a tax-free benefit when provided to owner/employees in an LLC. The restrictions or "cautions" you referred to do not apply to health insurance benefits, only uninsured benefits that are paid through a reimbursement arrangement. Keep in mind that when you say "taxed as a corporation" you mean taxed as an S corporation, not a C corporation. There is a big difference when it comes to taxation of uninsured health benefits. provides consulting help with these employee benefit planning issues that are not covered by the free OnlineAdviser service to help work around these tax limitations in the most effective manner.


More resources:

Freedom Benefits Association HRA