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How Small Business Owners with Special Needs Children Can Utilize Health Reimbursement Arrangements

Updated: Jul 14, 2023

Issue# 1111



Small business owners who have children with special needs face unique tax challenges when managing healthcare expenses. It is crucial for small business owners to explore how they can leverage HRAs to support their children's special needs, maximize available benefits, and potentially reduce their tax obligations.


📷 (Massliharf/VIA CANVA)


A Health Reimbursement Arrangement (HRA) is an employer-sponsored healthcare benefit that allows employers to reimburse employees for eligible medical expenses. It is established under Section 105 of the Internal Revenue Code. HRAs are designed to help employees cover

healthcare costs such as deductibles, co-payments, and other qualified medical expenses. The employer sets aside funds into the HRA, and employees can use those funds to pay for eligible healthcare expenses.


Let's explore how business owners can leverage HRAs to support their children's special needs and maximize available benefits.



Reimbursement for Essential Medical Expenses:


Children with special needs often require specialized medical treatments, therapies, and equipment. Business owners can be reimbursed for these qualified medical expenses by setting up an HRA. This includes costs associated with therapies, medications, adaptive equipment, and more. Utilizing HRA funds for these expenses allows for better financial management and potential reduction in out-of-pocket costs.


Tax Deductions:

One of the notable advantages of establishing an HRA is the tax benefit it offers. Contributions made by business owners to fund the HRA are generally tax-deductible as a business expense. This means that eligible medical expenses related to their child's special needs can be deducted, thereby reducing taxable income and overall tax liability. Taking advantage of these deductions can provide significant financial relief for business owners.

Customization and Flexibility:

Every child with special needs has unique requirements. HRAs offer business owners the flexibility to design a plan that specifically addresses their child's needs. They can customize the HRA to cover specific therapies, treatments, an interventions necessary for their child's well-being. This level of customization ensures that the child's individual needs are met while optimizing the utilization of available HRA funds.

Coordination with Other Health Coverage:

In many cases, business owners may already have other health insurance coverage in place, such as a group health plan or individual health insurance. HRAs can be designed to complement and supplement this existing coverage. By doing so, business owners can cover expenses that may not be fully covered by the primary insurance, including co-pays, deductibles, or treatments that fall outside the primary policy's coverage. This coordination ensures comprehensive healthcare coverage for their child.


It's important to note that the most commonly used vehicles to establish an HRA are sole

proprietorship and C Corporation. However, eligibility to establish an HRA can vary depending

on the business owner's company structure. While sole proprietorship and C Corporations are

commonly utilized, other options may be available, depending on the specific circumstances

and compliance with relevant regulations.


Establishing an HRA can be a game-changer for business owners with children with special needs. It provides reimbursement for essential medical expenses, offers tax deductions, and allows for customization and flexibility. By leveraging HRAs, business owners can effectively manage healthcare costs while ensuring their child receives the necessary care. Consult with benefits professionals, tax advisors, or attorneys to navigate the process and optimize the benefits available through HRAs. Take control of your child's healthcare expenses and provide the support they need to thrive.


Disclaimer: The information provided in this article is for general informational purposes only and should not be considered as professional advice. The specific rules and regulations governing HRAs may vary based on location, jurisdiction, and individual circumstances. It is essential to consult with qualified professionals, such as benefits advisors, tax consultants, or attorneys, who can provide personalized guidance based on your specific situation. They can help ensure compliance with relevant laws and regulations and address any specific concerns or requirements related to your business and your child's special needs.

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