I deduct health insurance because of “self-employed” rules on my 1040 and can also deduct OOP expenses on Schedule A. Why do I need a MERP and a TPA? Also, with an HSA I can deduct those deposits on Form 1040 and then make withdrawals tax-free. : FAQ/Blog/Solutions
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I deduct health insurance because of “self-employed” rules on my 1040 and can also deduct OOP expenses on Schedule A. Why do I need a MERP and a TPA? Also, with an HSA I can deduct those deposits on Form 1040 and then make withdrawals tax-free.

by Tom Luker on 05/01/15

In many postings we’ve discussed the values of using a formal MERP and an outside TPA.

  • Regarding the difference between the current Form 1040 deductions that the government has graciously provided [“Vote for me – look what I’ve given you!”], the use of a proper MERP is a BUSINESS deduction rather than a PERSONAL deduction.
  • The 1040 deduction is “above the line”, thus saving only INCOME tax and NOT FICA/SELF-EMPLOYMENT tax or other payroll taxes.
  • The Self-Employment Insurance premium deduction is restricted or eliminated if you or your spouse is offered health insurance through other employment.
  • The MERP also removes the potential of needing or even using Schedule A “itemized deductions” and thus qualify for the generous Standard Deduction.
  • Also, Schedule A deductions might be affected by the AMT restrictions (discussed elsewhere) and also removes the loss of the first 10% of AGI not being able to be moved at all to Schedule A. 
  • Therefore, with the use of the Standard Deduction you indeed get to sort of “double dip” because the Standard Deduction includes an allowance of sorts for medical costs, in addition to mortgage interest and charitable donations.
  • The bottom line is that if you can treat a “personal” expense as a “business” expense, it’s always better than using only “partial” deductibility on the front of the Form 1040.
  • The advantage of a MERP when an HSA is used is that the HSA deposit can be counted as an “insurance” reimbursement to the EE, thus saving payroll taxes as well as income taxes.
  • An advantage of using a TPA is that changes in rules will be monitored and passed on to clients. Also, TLC Plan Services will refund the Admin fee if taxes saved don’t exceed five times the fee. One of the major TPAs that TLC uses [TASC] guarantees IRS representation in event of an IRS audit and the payment of penalties if the client properly set up the MERP. Any good TPA will also make available to the IRS all paper-work backup.

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