How do we pay for the medical expenses in a Medical Expense Reimbursement Plan or Health Reimbursement Arrangement? Do we have to have a business account isolated only for this?by Tom Luker on 05/01/15
Some “mom and pop” businesses pay for business costs out of one account, which is also used as one single family joint checking account. However, most tax advisers recommend a business account if you indeed operate a business!
- In the case of the MERP/HRA you certainly don’t need a totally separate account in addition to the general business account [which can often be a joint account] which can be used for MERP/HRA reimbursements [of out-of-pocket costs or insurance premiums], direct payments of medical costs and/or insurance premiums.
- One major TPA with whom we work, TASC [and for whom we were a Regional Marketing Director in the 1990s] has a free Master Card [Debit Card] that the EE uses for qualified medical expenses and $1,000 [up to $2,000 in special cases] is advanced by TASC, and later reimbursed by the business. View a video about this at: “Learn how the TASC can make the management of your AgriPlanNOW or BizPlanNOW easy.”
- There have been some court cases caused by NOT using the business account, where the taxpayer lost, and the cleanest paper trail would be using the business account.
- Note: In the case of the spouse-EE receiving those reimbursement checks, it’s not wise to redeposit the check back in the same “family/business” account. Just deposit the check in the family or personal account, just like a “normal” EE would do, or maybe cash the check.
- What happens if you don’t have enough funds in the business account to cover the reimbursement checks? Some accountants have told us to just not deposit the check, and use only the business bookkeeping to record the MERP for tax purposes. This might come back to “bite the business” if an audit is performed for the benefit of the IRS.
- If the actual cashing of the check is recommended without funds to cover, the beneficiary-spouse-EE could provide a “loan” to the business from his/her personal account.
- This does sound like bookkeeping gymnastics, but the most important aspect is the bookkeeping records and the MERP EE communications rules as stated by ERISA and DOL.
- We’ll discuss reasons for “following the rules” elsewhere in our Blog/FAQ.
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