Medical Expense Reimbursement Plan (MERP)

January 29, 2020

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Medical expense reimbursement plans are a great tax strategy for many people in business. In order to qualify, to use a medical expense reimbursement plan, you’ll need to have a sole proprietor partnership or C-corporation structure for your business. You’ll also need a spouse unless you plan to do this for your employees who are not related to you in order to use this as a spousal plan, the concept is that you’ll be taking your after-tax medical expenses and converting them to pretax. You’ll be reimbursing your spouse for compensation and working in the business by instead of payroll reimbursing their medical expenses. There’s a written document that you’ll use as a plan document to justify this and to document it, and we can help you with that. And then you’ll take all of the out of pocket medical expenses that you incur for the year. And you’ll physically write a check to reimburse your spouse for this.

Now, these expenses can be for your spouse as well as anyone that is his or her dependent. So that can be for you as a business owner, as well as any children or other family members that you may support and show dependence on your tax return. Medical expenses include things like out-of-pocket medical. They do not include health insurance or dental insurance, but they will also include things like prescriptions, dental and eye coverage. So eye coverage again, remember includes glasses, contact lenses, contact lens solutions. And then, of course, you’ve got your dental out of pocket medical expenses like copays or paying a hospital or a medical provider. And looking at the timing of those expenses, they have to have been paid in that current year that you’re reimbursing for. So even if a procedure was from a prior year and you were issuing payment in the current year, that would be reimbursed in the current year. Also, remember that swiping a credit card counts as the payment time. So if you are using a special medical expense credit card for certain procedures, that is the date. When you make that charge will be the date when that expense is considered pay, not when you pay off the credit card. All right. So let’s get busy and set these plans up again. Make sure that that check clears before the end of the year. And if you have any questions about how a medical expense reimbursement plan works, please let me know. Thank you.

Donna Bordeaux, CPA with Calculated Moves

Creativity and CPAs don’t generally go together.  Most people think of CPAs as nerdy accountants who can’t talk with people.  Well, it’s time to break that stereotype.  Lively, friendly and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux.  They have over 50 years of combined experience as entrepreneurial CPAs.  They’ve owned businesses and helped business owners exceed their wildest dreams.   They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.