Tax-free employee benefits

One of the primary goals of small business employee benefit plans is to provide tax-free compensation to employees.

Employer-provided employee benefits are generally taxable in the same way as regular wages. There are exceptions, however, that allow tax-free treatment. Freedom Benefits focuses on allowing employers to maximize those nontaxable benefits that are selected by individual employees. The savings can add up to thousands of dollars in tax savings to both the employer and each individual employee.

Nontaxable benefits include:

Accident and health benefits.
Achievement awards.
Adoption assistance.
Athletic facilities.
De minimis (minimal) benefits.
Dependent care assistance.
Educational assistance.
Employee discounts.
Employee stock options.
Employer-provided cell phones.
Group-term life insurance coverage.
Health savings accounts (HSAs).
Lodging on your business premises.
Meals.
No-additional-cost services.
Retirement planning services.
Transportation (commuting) benefits.
Tuition reduction.
Working condition benefits

Employers  must meet other additional administrative requirements to keep each of these listed benefits free of federal income taxes1 to employees. That’s where Freedom Benefits come in. These benefits are tax-deductible by the employer and not taxable to the employee when provided under a Freedom Benefits small business employee benefit plan.

Employee contributions

Employees typically elect to receive compensation in the form of tax-free benefits instead of cash compensation,

Employer contributions

We generally recommend that employers allocate a minimum of 2% of total payroll of eligible employees to this type of employee benefit plan. When this funding requirement is met, the employer meets the requirements for non-discriminatory benefits. when this amount is allocated to benefits provided by us then no additional fees are charged by Freedom Benefits 2.

Ask for a proposal on the tax savings that can be offered to your firm’s employees.

 


1 In some cases the taxation under state laws varies from the federal tax treatment. Freedom Benefits does not provide tax advice except when included as part of a separate payroll services agreement or other tax services agreement.
2 Freedom Benefits charges a $300 initial consultation and proposal fee that is applied to the amount of available employer-paid benefits if the plan is started with the proposed amount of employer funding.

16 popular employee benefits for small businesses

A Freedom Benefits small business Consumer Driven Employee Benefit Plan can include these 16 benefits:

1) Group Health Insurance

2) Health Savings Account (HSA)

3) PPO Discount Pricing Service (PPO)

4) Health Reimbursement Arrangement (HRA)

5) Special Purpose Health Reimbursement Arrangement (SPHRA)

6) Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

7) Flexible Spending Account (FSA) including Dependent Care Plan

8) 401(k) Plan

9) Pension Plan

10) IRA or SEP Retirement Savings Plan

11) Deferred Compensation Plan

12) Thrift Savings Plan

13) Employee Home Office Expense Reimbursement Plan

14) Employee Travel Expenses Reimbursement Plan

15) Employee Work-Related Expense Reimbursement Plan

16) Other benefits specified by the employer

For a free copy of Freedom Benefits small business employee bnenfits Summary Plan Description, call or write us.

Small Business Employee Benefits Made Easy!

Small business employee benefits are managed much more effectively when the business owner has a basic working knowledge of the components that make the plan successful. This bog post lists those basic components.

  1. Understand the purpose of the employee benefit plan – Usually the goal, at least the starting point goal, is to provide benefits that are tax-deductible as a business expense and tax-free to the employee. If not for this tax advantage, there would be little incentive for employers to be involved. Each employer has a unique and specific goal and so the employee benefit plan is designed to match that goal.
  2. Understand what is not the purpose of an employee benefit plan – No longer do employers provide a ‘one size fits all’ and ‘take it or leave it’ benefit plan design. Today’s employee benefits are designed to extract and maximize the benefits and efficiencies of consumer-driven choices.
  3. Communication – Good communication is the key to a successful employee benefit plan. All of the stakeholders – the employer, employees, spouses and dependents of employees, plan administrator, claim administrator, insurer, and payroll company must feel comfortable that they have a reliable source of information. A reputable benefit plan adviser makes all the difference.
  4. Documentation – Employer resolutions, Enrollment forms, Plan Documents and summary plan Descriptions are typically required. A non-attorney typically provides these sample documents but cannot provide legal advice. The employer is encouraged to seek independent legal advice on all business documents.
  5. Claim accounting – Nowadays this is typically handled via secure portal, email or text message, at the option of the employee. The result is an approved claim report that is sent to payroll processing.
  6. Payroll processing – Most employee benefit transactions between the employer and the employe are handled through a payroll processing service. Once the benefits accounts are set up properly within the payroll system, this process usually flows smoothly. Typically the payroll processor sends reports back to the employer for general accounting purposes.
  7. Tax filings – some employee benefit plans require year-end filings either singularly or as a data inclusion on another form like a W2. Again, this process flows effortlessly within a properly set up payroll and benefits administration system.

Freedom Benefits is prepared to make all the details flow effortlessly. Just give a call to discuss your own small business employee benefit plan. 

One page summary of Freedom Benefits

Yesterday an inspiring business adviser Sara Rosenberg of Powermatch, wrote a social media post that said that every business should have a one page summary that answers four questions: (1) The problem you solve, (2) A very brief description of your process (3) How you are different than everyone else that does what you do, (4) The results that happen when someone hires you. This is a powerful idea but one that I have not ever considered, So I spent some time and came up with this that flows exactly in the 4 part format she suggests. Next I’ll work on polishing and simplifying the wording and checking on a few compliance issues.

Here is the draft text of the one page summary as of now:

Slash your taxes now!

How it works

Freedom Benefits helps your small business slash wage taxes and move more of your earnings to long term wealth building accounts with the benefit plans used by larger firms. Our small business employee benefit plans are integrated with your payroll system to take advantage of IRS-sanctioned accounting methods and tax-favored employee benefit plans. Plans are now redesigned for 2018 to maximize savings under the Tax Cuts and Jobs Act.

First, your small business meets with the planner to elect the benefits to be offered and selects the employer’s financial contribution, if any, that the business will make toward the cost of these voluntary benefit programs. Some options like a Health Reimbursement Arrangement, if elected, and administrative costs are paid by the employer. The employer’s cost is always controlled and limited by what the employer elects to contribute.

Then employees may elect to pay with Voluntary Salary Reduction for Insurance Premium Payments, Flexible Spending Account, Health Savings Account, and Dependent Care Assistance Plan components. Popular savings plans including a 401(k) Plan, Simplified Employee Pension, IRA and Thrift Savings Plan are available to help employees keep more of what they earn. New for 2018: employees may now elect to participate in a Home Office Expense Reimbursement, Travel Expense Reimbursement and Commuting Expense Reimbursement Plan and an Employee Work Expense Reimbursement Plan. The Plan Advisor works with each employee individually to plan the benefit combination that works best. Participation is completely voluntary.

Why we are different

Our service is based on building long term relationships that are aligned with supporting the financial goals of the business and your individual employees. We deliver big firm executive service to small businesses. Freedom Benefits is powered by the experience of Tony Novak, CPA, MBA, MT, an employee benefits adviser with more than 30 years helping small businesses nationwide. Success is ensured by our unique pricing policy that limits the plan cost to a fraction of the tax savings that you achieve.

Results

You will see immediate wage tax savings adding up to thousands of dollars per employee in combined employer and employee savings. The savings will begin to show in your first payroll report after implementation. Employees will enjoy a better understanding of their benefit options and see more accumulating by year end as an additional benefit. The sooner you start, the greater the savings in 2018.

HEALTH   *   RETIREMENT   *   DEPENDENT CARE   *   EMPLOYEE BUSINESS EXPENSE

The draft PDF version:

freedom benefits page

Insurance for small businesses

Q: Do you offer plans for small business? We are a small business of 3 people. Or can they purchase health insurance through you individually?

A: All of these plans shown in links related to Freedom Benefits are available to small businesses on a list bill basis. The easiest thing is to allow individuals to enroll without entering payment data and then ask us to set up the list bill.

If the business plans to pay for Obamacare-type individual insurance then an additional step is required to set up a Qualified Small Employer Health Reimbursement Arrangement.

Small group major medical coverage may also be available however these are traditionally not purchased through online enrollment services. A local representative may be the best bet.

“One-employee QSEHRA”: a contradiction in terms

The issue of health benefit payments for small businesses became a lot more complicated after implementation of the Affordable Care Act. After all, the law was designed to enforce rigid compliance with health care policy and do away with the liberally designed health plans that varied from one small employer to the next. Since late 2016 we’ve had a range of legislative and administrative actions to undo the harsh effect of the original law. Now we are left with a complicated hodge-podge of rules that can confuse just about anyone.

QSEHRAs are a new type of HRA implemented in 2017 that are specifically designed for an employer with a health plan covering two or more employees since plans covering only one employee are not subject to the reforms and restrictions that the QSEHRA is designed to address. The QSEHRA adds an additional layer of regulation and restrictions to allow an employer to help pay for individual insurance, something that is already always allowed in a one employee health plan,  In short, employers with a one employee health plan have no need for a QSEHRA.

The issue came up today among accountants when the bookkeeper of a small business said that the employer could reimburse only $10,0001 of the health insurance cost of an employee. The bookkeeper was likely referring to the strict excise tax penalties imposed by 4980 of the Internal Revenue Code and the limits of the workaround. Notwithstanding the effect of any administrative action designed to weaken and diminish the impact of these employer penalties, The IRS has already determined that these restrictions and penalties do not apply to one employee health plans2. In this case the use of a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) 3 is completely unnecessary and only serves to complicate the discussion.

My point is simply this: the QSEHRA was designed to help small employers mitigate the impact of ACA market reforms on small group plans – specifically those related to an employer penalty for paying for individual insurance. Those restrictions do not exist for one employee health plans. So any attempt to use a tool (QSEHRA) to mitigate the effect of the ACA is simply not necessary and only serves to create unnecessary complications and confusion.

While there is no authority specifically prohibiting the use of a use of a QSEHRA in a one employee plan, its use could be viewed by the Service or the courts, if applicable, as an error, It the event that QSEHRA failed to meet the more strict requirements then it seems likely that the plan might still qualifiy as a tradidtional HRA. For example, an employer with a one employee health plan that provided dental benefits would fail to meet the QSEHRA requirements but would still meet the requirements for a traditional HRA.

The conclusion is simple: Don’t use a QSEHRA in one person health plans where a traditional HRA will suffice.


1 The QSEHRA maximum for family coverage is actually $10,250 for 2018.

2 IRS Notice 2015-17: Guidance on the Application of Code § 4980D to Certain Types of Health Coverage Reimbursement Arrangements

3 IRS Notice 2017-67: Qualified Small Employer Health Reimbursement Arrangements

Caution about ‘skinny’ health plans

NBC News published a detailed investigative report on “skinny health plans” this past week. Their conclusion is that consumers are confused about health insurance and that the Trump administration is adding to the confusion. As a guy who has handled more than 50,000 consumer communications about health insurance over many years, I agree with the published report’s analysis and conclusion. Yet this this consumer confusion existed back in the years before the Affordable Care Act so we can’t blame it all on Trump just because he has pushed the ‘skinny’ health insurance approach by executive order.

I tend to react furiously to false advertisement claims by health insurance marketers, often untrained telephone sales boiler rooms that notoriously mislead consumers. Recent claims that insurance plans are “ACA compliant” or “promoted by President Trump” are the most confusing to consumers lately.

Yet these alternate health plans do have their place in the market. Whether we call them “skinny health plans”, “short term medical insurance”, “limited benefit health insurance” or “core health insurance”, my position has always been that some coverage is better than none at all.

Most people who pay for their own insurance are not adequately covered by any single health insurance  plan, including the ACA health insurance policies. Whether an ACA plan or another plan works better for a normally healthy person is a function of the type of medical bills they will incur in the future; something we can seldom predict in advance.

In a perfect world, we would be covered by a government-influenced basic coverage and a supplemental policy through our employer or purchased individually. Although we are far from a perfect world, Freedom Benefits can help small business employers redesign their health plans to maximize the benefits to employees that are offered through a combination of public and private health plans.

Small business’ role in children’s health insurance

What role do small business owners have in providing health coverage for children of employees?

This question is increasingly significant as the federal government stalls and is apparently unwilling to issue funding for ‘CHIP’ programs that cover the children of nearly 9 million moderate income families that have historically been supported by the majority of lawmakers. Recent news reports indicate that the Senate is unlikely to approve the funding so states and employee benefits advisers like us are beginning to investigate alternatives. This article is meant to provide a preliminary checklist.

  1. Small businesses are not required to provide health insurance to employees.
  2. Businesses that do provide health insurance to employees are not required to provide it (or even make it available) to employees’ children.
  3. Businesses that do provide employee health coverage typically cover children on the same plan and under the same terms as the employees.
  4. CHIP often covers the children of parents who work in small businesses.
  5. Until 2010, the United States was making strong positive progress in providing health coverage to low income children. I covered this topic here in 2011. Most of these initiatives were replaced by the Affordable Care Act (ACA).
  6. The implementation of the ACA dominated coverage from 2012 until this year, 2017. This federal law treated all low income people equally (although coverage varied depending on state and local markets).
  7. The rollback of funding for ACA is the primary factor affecting children’s health insurance for lower income families in 2018.
  8. The cost of children’s health insurance is less than the cost of adult coverage
  9. In many cases small businesses are wise, considering all the options and current laws, to provide supplemental health coverage and avoid providing primary health coverage to employees and their dependents.
  10. Employee health plans can be modified to provide relief for employees’ children in the event of a cancellation of CHIP programs without disturbing other employer policies that are currently in force.

This blog post offers generalized comments for public presentation. Discussion is not customized for each state’s laws. Some of these points may not apply to your firm. Please seek individual guidance that applies to your firm and your state’s laws.

Concerns of small businesses in response to the president’s executive order on health care

On October 12, 2017 the president issued an executive order that directed federal government agencies to explore ways to loosen niche types of health insurance. My annotated copy of the execuive order is posted on my web site at http://tonynovak.com/annotated-health-care-executive-order/.

The executive order does not address these immediate concern to small businesses and individuals:

1) Indicate any change in state insurance regulations that prohibit the use of short term medical or limited benefit insurance plans within its borders. This is of special importance in states with the most restrictive and most expensive insurance.

2) Predict how state insurance regulators will react to the sale of already approved limited benefit or short term medical insurance across state borders to residents within its jurisdiction.

3) Indicate how state insurance prohibiting the use of association insurance plans will be affected or persuaded to ease in conjunction with this executive order.

Freedom Benefits is working with insurance companies, business associations and individual business clients to address these issues and close the gap in knowledge where specific health plan solutions are needed. We are especially focused on solutions for New Jersey small businesses since this state has the most restrictive insurance laws in the nation in this market niche.

Freedom Benefits acts as an adviser but not an insurance company, agent, broker, insurance exchange, association health plan or other entity affected by the executive order. We may be paid paid to perform support functions for any of these entities.

Profiting from the new Trump administration health plan rules

New opportunities for small business planning

(This post is speculative based on an announcement that is expected in the near future. The content is therefore valid only if regulations are changed as predicted).

Later this week the Trump administration is expected to roll back  range of restrictive regulations on health insurance that will open the door to new opportunities for saving. These are actuarial principles that Freedom Benefits has endorsed since the 1980s.

The core concept is shockingly refreshing: small businesses should focus on serving the immediate needs of their most productive workers.  The new regulations allow and even encourage small business employers from trying to solve all of our ailing health car system’s woes. That means giving up and releasing outlier health care risks. It means analyzing and addressing the core medical needs of your small group of employees.

The new plans will make broad use of short term medical insurance for new or transient employees who do not have pre-existing medical conditions. This one change can save an average of half of the insurance cost compared to Obamacare era health plans.

Small businesses will again be attracted to limited benefit mini-med insurance that focus on the “sweet spot” of medical costs incurred by the majority of employees. The most important difference is that they eliminate the deductibles that employees hate. These plans are priced at least 15% lower than traditional major medical plans but have some glaring holes in coverage, like prescription drugs, that some people have come to expect. Fortunately today’s flexible small business health plans like those offered by Freedom Benefits allow individual employees can weigh the pros and cons on an individual basis.

High tech, construction and agricultural businesses that traditionally rely on temporary international workers will save money by using insurance that is specifically designed for inbound immigrants.

Most importantly, employers will be empowered to design health benefits that are independent of insurance companies. Health Reimbursement Arrangements, Health Savings Accounts and Flexible Spending Accounts will play a larger role for employers who want to take control and directly address employees’ health care concerns. Freedom Benefits offerers these customized plans on an affordable basis that fit the budget of small business employers.