HRAs and S corporation owners

Business owners don’t just want health benefits for their employees. They often want health coverage for themselves and their families too. But, depending on your business structure, you may not be able to participate in health benefits, like health reimbursement arrangements (HRAs).

HRAs are employer-funded health benefits that allow employees to receive tax-free reimbursements for qualified out-of-pocket medical expenses. HRAs are only for W-2 employees. That means S corporation owners with more than 2% of stock and their families can’t participate in an HRA because the IRS considers them self-employed.

Instead of an HRA, S corp owners can deduct their health insurance premiums on their personal income tax returns by establishing the policy through their company and having the company pay the premiums.

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