Q:

What is a Section 105 Medical Reimbursement Plan?

A:

Quick Answer

Section 105 of the IRS code outlines the rules and regulations associated with Medical Reimbursement Plans, which exempts small businesses from paying taxes on their medical expenses. Under a Medical Reimbursement Plan an employer can reimburse an employee for medical and insurance expenses as outlined in the employer-sponsored plan.

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Full Answer

Medical Reimbursement Plans are typically enacted by small business owners to extend medical and dental coverage to their dependents or employees. Most small businesses utilize the plans to serve as their employer-sponsored policy, however, they can also be supplemented with more traditional policies to reduce the associated deductibles.

To initiate a Medical Reimbursement Plan, the employer must submit a formal plan to the Internal Revenue Service. The proposal must satisfy the rules and regulations outlined in Section 105 and provide details regarding each employee's reimbursement amounts. As eligible expenses are submitted for reimbursement, the employer is then responsible for providing tax-free reimbursements up to the allotted amounts.

Section 105 of the IRS code allows qualified business owners to deduct 100 percent of certain medical and insurance costs. As of 2014, expenses eligible for exemption include those related to health and dental insurance premiums, disability income, Medicare Part A and all out-of-pocket medical, dental and vision costs for eligible employees and their families. Employers are responsible for establishing eligibility requirements and maximum reimbursement amounts.

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