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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 vs. HSA for small S corporation

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posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date.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: Can I have a HRA plan if I am the sole owner of an S corporation that has 2 employees – (my wife and myself) and cover her with the HRA that would include her and her family (me)? If so, what are the costs to administer this?

A: Yes, as long as your spouse is actually an employee as defined by IRS. The general rule is that HSAs are better for self-employed people, HRAs are better for common law employees. You are on the fence between the two options. The downside of HRA approach is that you must pay wage taxes and file a Form 941 quarterly wage tax withholding form on your spouse that might otherwise be avoided. Some small S corporations in this situation unknowingly set up HRA benefit plans for the spouse without documenting employee wage tax withholding but be aware that the HRA deduction would be disallowed if you are audited. More information on tax treatment is available at An alternate approach that avoids the wage tax expense is to use a Health Savings Account (HSA) rather than an HRA. The prerequisite for an HSA is that you must have qualifying high deductible health insurance. Regarding costs for each approach: offers an HRA for $150/year. offers HSAs at little or no cost (depending on options you select) after you have the required health insurance. The cost and availability of the insurance varies, but there are online resources that help.


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