Can I use an HRA if I’m self-employed?

While there are a few hoops to jump through when you own your own business, determining how you will receive health benefits as a self-employed worker doesn’t have to be one of them. Health reimbursement arrangements have become increasingly desirable over the last decade for businesses of all sizes– even for small businesses of one! Examine the requirements below to answer your question – can I use an HRA if I’m self-employed?

Can I use an HRA if I’m self-employed?

We will get to this in a minute! But first, some context. 

What is an HRA?

A health reimbursement arrangement is an affordable alternative to traditional health insurance. Employees are reimbursed by their employers for medical expenses and health care premiums through a tax-advantaged structure.  

If you are dabbling in health care options, two main types of HRAs may be available to you if you are self-employed:

Qualified small employer health reimbursement arrangement 

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) allows small businesses to set aside a fixed amount of funds each month. Employees can use pre-taxed funds to purchase their health insurance or pay for medical expenses. Employers benefit from not having to stress about facilitating a group healthcare plan that fits the needs of each of their employees.

Individual coverage health reimbursement arrangement 

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is similar in that the employer can allocate pre-taxed funds that their employees can use on health insurance premiums and medical expenses. However, an ICHRA doesn’t limit the size of the business or the amount of funds that can be allocated. Additionally, an ICHRA has the benefit of being able to be used alongside a group health care plan.  

Am I qualified for an HRA as self-employed?

You are considered self-employed if you own a business that doesn’t have any employees but allows you to collect an income. In general, to qualify for an HRA as a self-employed individual, you must be considered an employee of your business. There are a few ways to set up your business that satisfies this requirement. 

C- Corporations allow an owner to be a separate entity from the business. Because they aren’t legally tied to the business as the owner, they and their dependents can participate in the HRA.
S-Corporations prevent businesses from being taxed by passing profits and losses through shareholders’ personal income tax returns. As a result, an owner who owns more than 2% of the business is considered self-employed, not an employee, and cannot participate in an HRA. However, they can already deduct some health insurance expenses without an HRA. Nonetheless, we recommend S- Corp owners talk to a licensed tax professional if they are interested in taking part in an HRA. 
Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible to participate in an HRA. However, if a partner’s spouse is a W-2 employee (and not another partner), the partner can participate in the HRA as a dependent of their spouse.  
Sole-Proprietorships are unincorporated businesses owned and operated by one person in a way in which there is no distinction between the business and the owner. Because the owner is not an employee, they are not eligible for an HRA unless their spouse is a W-2 employee and the owner is claimed as a dependent.  
Additionally, if you’re married and self-employed with no employees, you can follow these steps to participate in an HRA.

How do insurance and HRA coverage work for self-employed? 

By design, HRAs are user-friendly. Once you’ve determined you’re eligible for self-employed health benefits through an HRA, actually setting up and maintaining your plan is simple!

Design your plan. You’ll determine who in your business will be eligible for the HRA and how much you’ll allocate for monthly reimbursement funds. You’ll have a few options to satisfy this requirement as a self-employed. For more information on this, review how to qualify for an HRA as self-employed.
Sign up for your individual health insurance. Because your HRA is not part of a group health care plan, you will need to sign up for your health care plan. You’ll provide proof of coverage as normal when picking up prescriptions or attending doctor’s appointments.
Provide proof of expenses. Keep a record of all paid medical expenses that you plan to submit for reimbursement. Simply take a picture of paid receipts and submit them to your HRA portal. 
Receive reimbursements. Each month, you will receive reimbursement checks from your employer (your business!) covering the approved expenses. 

For a more comprehensive list of what can be reimbursed through an HRA, check out this post.

HRA requirements for health insurance for self-employed

If you’ve discovered you’re eligible for an HRA through one of the qualifications listed above, let’s discuss your plan options. Look at the following HRA structures to determine which scenario is most appropriate for you.

One-person 105 HRA

Well, it’s not a real “plan” as much as it is a loophole in Section 105 of tax legislation. You may have heard it referred to as a “Single Participant HRA” or “Section 105 HRA”. 

Essentially, the Self-Insured Medical Reimbursement Plan states that Section 105 HRAs must be integrated with a group health insurance plan. It does not specify the size of that group. In other words, if you’re a party of one, you’re in luck!

No clause states that you, as a self-employed individual, cannot participate in an individual health care plan and integrate it with an HRA. As long as no additional employees are being discriminated against through their exclusion from the HRA, you’re good to go.

For a more in-depth discussion of One-person 105 HRAs, check out this article.

QSEHRA

As we mentioned earlier, a QSEHRA is an HRA plan reserved for businesses with 50 or fewer employees. Depending on how you structure your business, a QSEHRA is a viable option for your health benefits as a self-employed individual.  

For example, if you, the owner, are considered an employee of your company instead of an employer, you would be able to participate in your HRA. If this option interests you, take a look at this article to ensure you satisfy the legal requirements set in place by the IRS regarding QSEHRAs.

Still not sure? Our expert team is standing by and would love to talk you through your options. 

Self-employed HRA administrator 

The best part is, your HRA can be set up and ready to go in an afternoon! Once you’ve determined how you qualify, it’s a matter of identifying the requirements specific to your business and just getting started.  

If you’re eligible for a One-Person 105 HRA, the privacy obligations are less restrictive because it’s just you! However, if your business qualifies you for a QSEHRA, you must ensure you follow each step in accordance with legal requirements.  

On the other hand, if you’re someone who just doesn’t have the time or energy to spend on navigating health care plans, we have a team of specialists available to you from beginning to end. We will help you select the best HRA for your business and enroll all eligible employees, manage reimbursement requests, and ensure you’re checking all your legal boxes- taxes and all!  

If you’d like to learn more about how Take Command Health can be your go-to provider for your health benefits as someone self-employed, we’d love to hear from you.