I’m a single parent and am operating my business as a sole proprietorship. Can I use a Medical Expense Reimbursement Plan or Health Reimbursement Arrangement?by Tom Luker on 05/01/15
Yes you can, but there are gymnastic exercises you must master. If you can’t do the requirements indicated below, then the answer is that you don’t qualify.
- If you’re a C-Corp or an LLC electing to be taxed as a C-Corp or S-Corp, you can, because you are your own EE and can give yourself 100% benefits. We’ll discuss S-Corp treatment at another time.
- However, if you’re filing a Schedule C or F, you can’t “hire yourself” – you just “own the shop.”
- A MERP is a Flexible “Employee” Benefit. To get a benefit, the person must be an EE. If you are filing a Schedule C or F, or are in a Partnership, then you must have an opportunity for spousal employment. It’s an advantage to be married, but certainly not a reason to get married!
- One solution we set up was a child operating another business, who arranged to hire his mother and set up a MERP/HRA as we’ve described in other questions.
- Another example was a single person being hired as an EE in a friend’s business and participating in her MERP as comp.
- Remember, the “employment” must be legitimate. Services performed and not a sham arrangement. And, the employment doesn’t have to be full time, as long as you’re eligible according to the Adoption Agreement.
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