Yes, a Section 105 plan can reimburse long-term care insurance premiums — and in many cases, it does so on a 100 percent tax-free basis. IRC Section 105(b) allows employers to reimburse employees for medical expenses, including qualified long-term care insurance premiums, without triggering income tax for the employee. The catch is that IRC Section 213(d)(10) imposes age-based caps on how much of a long-term care premium counts as a deductible medical expense — but a properly structured Section 105 plan can bypass those caps entirely.
About 70 percent of Americans turning 65 today will need some form of long-term care in their lifetime. Medicare covers no more than 100 days of skilled nursing or rehabilitation care — leaving a massive gap that long-term care insurance fills.
Here is what you will learn:
- 🔍 How Section 105 plans work and which types — HRA, QSEHRA, ICHRA — reimburse long-term care insurance
- 💰 The spousal employee strategy that lets sole proprietors deduct 100% of long-term care premiums as a business expense
- 🏢 How C corporations, S corporations, partnerships, and sole proprietors each handle Section 105 long-term care reimbursement differently
- ⚠️ The specific mistakes that cause the IRS to deny Section 105 deductions — and exactly how to avoid them
- 📋 The 2026 age-based limits, nondiscrimination rules, and qualified insurance requirements you must follow
What Section 105 Actually Says
Section 105 of the Internal Revenue Code covers amounts employees receive through employer-funded accident and health plans. Under Section 105(a), those amounts are generally included in the employee’s gross income. Section 105(b) then carves out an exclusion: reimbursements for medical care under Section 213(d) are tax-free to the employee.
Qualified long-term care insurance premiums fall within the definition of medical care under Section 213(d)(1)(D). This means an employer’s Section 105 plan can reimburse an employee for long-term care premiums, and the employee pays zero federal income tax on that reimbursement. The employer then deducts the reimbursement as an ordinary business expense under IRC Section 162(a).
Three Types of Section 105 Plans That Cover Long-Term Care
Not all Section 105 plans are the same. Three plan types exist, and each handles long-term care insurance reimbursement a little differently.
The Health Reimbursement Arrangement (HRA)
The 105-HRA is the most flexible option. It allows employers to reimburse employees for qualified medical expenses — including long-term care insurance premiums — on a completely tax-free basis. The employer sets the reimbursement amount, and there is no statutory cap on how much can be reimbursed under a traditional HRA.
A 105-HRA works best for sole proprietors with only a spousal employee or for C corporation owner-employees. The Affordable Care Act exempts one-employee HRAs from its market reform rules, which means these plans face no ACA penalties when structured correctly.
The QSEHRA (Qualified Small Employer HRA)
The QSEHRA is available to employers with fewer than 50 full-time employees who do not offer group health insurance. Long-term care insurance premiums are an eligible QSEHRA expense. The IRS sets annual contribution limits for QSEHRAs, which restricts how much an employer can reimburse each year.
For 2025, the QSEHRA limits are $6,350 for self-only coverage and $12,800 for family coverage. These caps mean a QSEHRA may not cover the entire cost of an expensive long-term care policy, especially for older employees with higher premiums.
The ICHRA (Individual Coverage HRA)
The ICHRA became available in 2020 and is open to employers of any size. Employers can choose to reimburse insurance premiums only, qualified medical expenses only, or both. There is no annual cap on ICHRA contributions, which makes it a strong option for covering long-term care insurance.
One important limitation: the ICHRA does not reimburse a spouse’s group health insurance premiums on a tax-free basis. Employees must have their own individual health coverage to participate.
| Plan Feature | 105-HRA | QSEHRA | ICHRA |
|---|---|---|---|
| Employer size | Any (often 1 employee) | Fewer than 50 FTEs | Any size |
| LTC premiums eligible | Yes | Yes | Yes (employer must allow) |
| Annual cap | None (employer sets) | IRS-set limits | None (employer sets) |
| ACA group plan required | No (1-employee exempt) | No | No |
Why Long-Term Care Premiums Create a Tax Problem
Long-term care insurance is expensive. A 55-year-old couple can pay $3,000 to $7,000 or more per year in premiums. The tax code makes it harder to deduct those costs because of two separate limitations that stack on top of each other.
The Age-Based Cap Under IRC Section 213(d)(10)
The first limitation restricts how much of a long-term care premium qualifies as a deductible medical expense. The IRS publishes age-based limits each year that cap the deductible amount per person.
| Age Before End of Tax Year | 2025 Limit | 2026 Limit |
|---|---|---|
| 40 or younger | $480 | $500 |
| 41 to 50 | $900 | $930 |
| 51 to 60 | $1,800 | $1,860 |
| 61 to 70 | $4,810 | $4,960 |
| 71 or older | $6,020 | $6,200 |
A 52-year-old paying $4,000 per year for long-term care insurance can only count $1,860 (in 2026) as a medical expense under these caps. The remaining $2,140 gets no tax benefit at all under the standard rules.
The 7.5 Percent AGI Floor
The second limitation applies when long-term care premiums end up as a personal itemized deduction on Schedule A. You can only deduct medical expenses that exceed 7.5 percent of your adjusted gross income. Someone earning $100,000 must clear a $7,500 floor before a single dollar of medical expenses produces a deduction.
These two limitations together can wipe out most or all of the tax benefit. A Section 105 plan solves this problem because business reimbursements under Section 105 are not subject to either limitation.
How Each Business Structure Handles Section 105 and Long-Term Care
Your business entity determines which Section 105 strategy produces the best result. The rules differ sharply between C corporations, S corporations, sole proprietorships, and partnerships.
C Corporations: The Gold Standard
A C corporation can provide long-term care insurance as a tax-free employee fringe benefit under IRC Section 106. The corporation deducts the full premium as a business expense under IRC Section 162(a). The employee — even if that employee is the sole owner — pays zero income tax on the benefit.
C corporations face no age-based limits on long-term care insurance deductions. The corporation can also discriminate in favor of the owner and offer long-term care insurance to select employees only. There is no nondiscrimination provision for fully insured accident and health plans, and the IRS has not enforced the ACA nondiscrimination rules under Notice 2011-1.
Example: Maria, age 58, is the sole owner-employee of her C corporation. She pays $5,000 per year for qualified long-term care insurance. Her corporation reimburses her for the full $5,000 through its Section 105 plan.
| What Happens | Tax Result |
|---|---|
| Corporation pays $5,000 LTC premium | Full business deduction |
| Maria receives $5,000 reimbursement | Tax-free under Section 105(b) |
| Age-based limit applies? | No — business expense, not personal |
| 7.5% AGI floor applies? | No — not an itemized deduction |
Sole Proprietors and Single-Member LLCs: The Spousal Employee Path
Sole proprietors and single-member LLCs taxed as sole proprietorships cannot use a Section 105 plan to reimburse themselves directly. The owner is not an “employee” for Section 105 purposes. Without a 105-HRA, a sole proprietor deducts long-term care premiums on IRS Form 7206 as self-employed health insurance — subject to the age-based caps.
The workaround is the spousal employee strategy. If the sole proprietor hires their spouse as the only employee and establishes a 105-HRA covering family members, the plan can reimburse the spouse-employee for long-term care insurance that covers the entire family. The owner receives coverage as the employee’s spouse — and the reimbursement is a 100 percent deductible business expense on Schedule C.
Example: Tom, age 62, runs a consulting business as a sole proprietor. His wife Sarah, age 60, works part-time in the business. Tom establishes a 105-HRA with Sarah as the sole employee. Sarah’s plan covers long-term care insurance for herself and Tom.
| What Happens | Tax Result |
|---|---|
| Tom pays $9,000 total for LTC premiums (both spouses) | Reimbursed through 105-HRA |
| Sarah submits receipts for reimbursement | Tax-free under Section 105(b) |
| Tom deducts $9,000 on Schedule C | Full business deduction |
| Age-based limits apply? | No — business reimbursement |
Without the 105-HRA, Tom would be limited to deducting $4,960 (his age-based cap) plus $1,860 (Sarah’s cap) = $6,820 on Form 7206. The 105-HRA saves him from losing $2,180 in deductions.
S Corporation Owners: Limited by the Age-Based Caps
More-than-2-percent shareholders of S corporations are treated like self-employed individuals for health insurance purposes under IRS Notice 2008-1. This means they cannot receive tax-free long-term care insurance through a Section 105 plan. The S corporation must follow a specific three-step process.
Step 1: The S corporation pays the long-term care insurance premium directly or reimburses the shareholder-employee.
Step 2: The S corporation includes the premium amount on the shareholder-employee’s W-2 as compensation — but this amount is not subject to FICA or FUTA taxes.
Step 3: The shareholder-employee deducts the premium on IRS Form 7206 as self-employed health insurance, subject to the age-based limits.
| What Happens | Tax Result |
|---|---|
| S corp pays $5,000 LTC premium for owner (age 58) | Deductible business expense for corp |
| Amount added to owner’s W-2 | Included in income (no FICA) |
| Owner deducts on Form 7206 | Limited to $1,860 (age 51-60 cap) |
| Net taxable amount | $3,140 gets no deduction |
This is why many tax advisors view S corporations as unfavorable for long-term care insurance deductions compared to C corporations or sole proprietorships with spousal employees.
Partners in Partnerships
Partners follow a process similar to S corporation shareholders. The partnership pays the long-term care insurance premium or reimburses the partner. It then reports the premium as a guaranteed payment on the partner’s K-1. The partner deducts the premium on Form 7206 — again, subject to the age-based caps.
| What Happens | Tax Result |
|---|---|
| Partnership pays $4,500 LTC premium for partner (age 64) | Reported as guaranteed payment |
| Partner receives K-1 showing premium | Included in partner’s income |
| Partner deducts on Form 7206 | Limited to $4,960 (age 61-70 cap) |
| Net taxable amount | Full deduction (premium under cap) |
Older partners often fare better because their age-based cap is higher. A partner age 71 or older can deduct up to $6,200 in 2026, which covers the cost of many policies.
The Spousal Employee Strategy in Detail
This is the most powerful tax strategy available to sole proprietors for long-term care insurance. It turns what would be a limited personal deduction into a full business write-off. Here is exactly how it works.
Who Qualifies
You must operate as a sole proprietorship or a single-member LLC taxed as a sole proprietorship. Your spouse must be your only eligible employee. You cannot have other W-2 employees in the business, because the 105-HRA nondiscrimination rules would then require you to offer the same benefits to all employees.
How to Set It Up
Your spouse must perform legitimate work for the business. The IRS looks for proof that the spouse is a bona fide employee — time sheets, a job description, and evidence of actual duties performed. You do not need to pay your spouse a separate W-2 wage. The 105-HRA benefits alone can serve as the employee’s sole compensation.
You must adopt a written Section 105-HRA plan document. The plan must state that it covers the employee and the employee’s family members. Once in place, your spouse submits long-term care insurance receipts for reimbursement, and you deduct the reimbursement on Schedule C.
Why the Age-Based Limits Disappear
The age-based limits under IRC Section 213(d)(10) apply to individual tax deductions — the self-employed health insurance deduction on Form 7206 and the itemized deduction on Schedule A. A Section 105-HRA reimbursement is a business expense, not a personal deduction. It is governed by IRC Section 162(a), which has no age-based cap. This is why the 105-HRA is so valuable for long-term care insurance.
Three Common Scenarios
Scenario 1: The Sole Proprietor With a Spousal Employee
Background: James, age 55, and his wife Linda, age 53, run a home-based bookkeeping business. James is the sole proprietor. Linda handles scheduling and client communications for about 15 hours per week. They pay $6,500 per year in combined long-term care insurance premiums.
Without a 105-HRA: James deducts on Form 7206, subject to limits. His cap is $1,800, Linda’s is $1,800. Total deductible: $3,600. Lost deduction: $2,900.
With a 105-HRA: James hires Linda as his sole employee and creates a 105-HRA with family coverage.
| Without 105-HRA | With 105-HRA |
|---|---|
| Deduction limited to $3,600 | Full $6,500 deduction |
| Deducted on Form 7206 | Deducted on Schedule C |
| Subject to earned income limit | No earned income limit |
| $2,900 in lost deductions | $0 lost |
Scenario 2: The C Corporation Owner
Background: Rachel, age 67, owns and operates a small marketing firm as a C corporation. She is the only employee. She pays $8,500 per year for qualified long-term care insurance.
Without a Section 105 plan: Rachel could still get a full deduction because C corporations can provide long-term care insurance as a fringe benefit under IRC Section 106. The corporation deducts $8,500 as a business expense, and Rachel receives the benefit tax-free.
| Corporation’s Action | Rachel’s Tax Impact |
|---|---|
| Pays $8,500 LTC premium | $0 taxable income |
| Deducts $8,500 on corporate return | Reduces corporate taxable income |
| No age-based limit applies | Full premium is deductible |
Scenario 3: The S Corporation Owner Stuck With Limits
Background: David, age 54, owns 100% of an S corporation. He pays $4,200 per year for long-term care insurance.
The process: His S corporation pays the $4,200 premium, adds it to David’s W-2, and David deducts what he can on Form 7206.
| Step | Amount |
|---|---|
| LTC premium paid by S corp | $4,200 |
| Added to David’s W-2 | $4,200 |
| Age-based cap (age 51-60, 2026) | $1,860 |
| Amount David can deduct | $1,860 |
| Lost deduction | $2,340 |
David loses $2,340 in deductions every year because of the age-based cap. If David restructured his business as a sole proprietorship with his spouse as an employee — or as a C corporation — he could deduct the full $4,200.
Section 105(h) Nondiscrimination Rules You Must Know
Section 105(h) applies to self-insured medical reimbursement plans, which includes HRAs. If your plan fails these rules, reimbursements to highly compensated individuals (HCIs) become taxable as “excess reimbursements” under Section 105(h)(7).
Who Is a Highly Compensated Individual?
Under Section 105(h), a highly compensated individual is any of the following:
- One of the five highest-paid officers of the company
- A shareholder who owns more than 10 percent of the company’s stock
- Among the highest-paid 25 percent of all employees
The Two Required Tests
Eligibility Test: The plan must not discriminate in favor of HCIs regarding who can participate. A plan satisfies this test if it benefits at least 70 percent of all employees, or 80 percent of eligible employees if at least 70 percent are eligible. The plan can also pass by covering a nondiscriminatory classification of employees based on objective business criteria like job category or geographic location.
Benefits Test: All benefits available to HCIs must also be available to all other eligible participants. The plan cannot offer bigger reimbursements or broader coverage to HCIs than to rank-and-file employees.
When Nondiscrimination Rules Do Not Apply
A sole proprietor with only a spousal employee does not face a discrimination problem because the plan covers the only employee. A C corporation with a single owner-employee also faces no issue. The nondiscrimination rules matter most when a business has multiple employees and wants to offer long-term care reimbursement only to owners or executives.
Plans that reimburse premiums for insured plans (like paying for a group long-term care policy) are not subject to Section 105(h) testing. Only self-insured reimbursement arrangements trigger the nondiscrimination requirements.
What Makes Long-Term Care Insurance “Qualified”
Not every long-term care policy qualifies for tax-favored treatment. IRC Section 7702B(b)(1) sets four requirements that a policy must meet.
Requirement 1: The policy must provide coverage only for qualified long-term care services. These are diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services — plus maintenance and personal care services — required by a chronically ill individual under a plan of care prescribed by a licensed health care practitioner.
Requirement 2: The policy must be guaranteed renewable. The insurer cannot cancel the policy as long as the policyholder pays premiums.
Requirement 3: The policy must have no cash surrender value. You cannot cash out a qualified long-term care policy.
Requirement 4: The policy must not reimburse expenses that Medicare covers. This prevents double-dipping on government-covered services.
Most traditional long-term care insurance policies sold today meet these requirements. Hybrid or linked-benefit life insurance policies that include long-term care riders usually do not qualify for the tax deduction. This is a critical distinction — if your policy is a hybrid product, your Section 105 reimbursement may not be tax-free.
PCORI Fee: A Hidden Cost of Section 105 Plans
Business owners with a 105-HRA, QSEHRA, or ICHRA must pay an annual fee to the Patient-Centered Outcomes Research Institute (PCORI). This fee applies to plan sponsors of self-insured health plans. The fee is relatively small — typically around $3.22 per covered life for plan years ending in 2024 — but failing to pay it results in IRS penalties.
The PCORI fee is due by July 31 each year for the prior plan year. Many small business owners do not realize this fee exists until they receive an IRS notice. You report and pay it on IRS Form 720.
Mistakes to Avoid
These errors cause the IRS to deny Section 105 long-term care insurance deductions. Each one is preventable.
Mistake 1: No Written Plan Document. A Section 105 plan must exist in writing before reimbursements begin. Reimbursements made without a formal plan document in place are not excludable under Section 105(b). The IRS has denied deductions in cases like Albers v. Commissioner where the taxpayer had no written plan.
Mistake 2: Spouse Is Not a Bona Fide Employee. The IRS examines whether the spouse-employee performs real work for the business. You need time sheets, a written job description, and evidence that the spouse’s duties serve a legitimate business purpose. The Shellito case shows that courts scrutinize the employment relationship closely.
Mistake 3: Reimbursing a Non-Qualified Policy. If your long-term care insurance is a hybrid life/LTC product that does not meet Section 7702B(b)(1) requirements, the reimbursement is not excludable from income. You must confirm the policy is “tax-qualified” before running premiums through your Section 105 plan.
Mistake 4: S Corporation Owner Treating Reimbursement as Tax-Free. More-than-2-percent S corporation shareholders cannot receive tax-free Section 105 reimbursements. The premium must be included on the W-2. Failing to do this creates a payroll tax and income tax problem.
Mistake 5: No Substantiation of Expenses. The employee must submit proof — receipts, invoices, or statements — showing the amount paid for long-term care insurance. The employer must review and approve each reimbursement. Unsubstantiated reimbursements are not eligible for the Section 105(b) exclusion.
Mistake 6: Ignoring the PCORI Fee. Every self-insured health plan, including HRAs, must pay the annual PCORI fee. Missing this payment leads to IRS penalties and interest.
Mistake 7: Failing to Treat All Businesses as One. If you or your spouse own multiple businesses, the IRS treats all entities as one employer for nondiscrimination purposes. Employees in any of your businesses count when determining whether your 105-HRA plan discriminates.
Do’s and Don’ts for Section 105 Long-Term Care Reimbursement
| Do ✅ | Don’t ❌ |
|---|---|
| Do adopt a written plan document before making any reimbursements — the IRS requires it | Don’t reimburse long-term care premiums without verifying the policy is “tax-qualified” under IRC Section 7702B |
| Do keep time sheets and job descriptions proving your spouse is a bona fide employee | Don’t assume S corporation owners can receive tax-free LTC reimbursements — they cannot |
| Do have your spouse-employee submit receipts for every reimbursement | Don’t forget to pay the annual PCORI fee by July 31 on Form 720 |
| Do confirm your plan covers “employee and family” if you want the owner covered as a spouse | Don’t ignore employees in other businesses you own — all entities are treated as one employer |
| Do consult a tax professional before choosing between a 105-HRA, QSEHRA, or ICHRA | Don’t use a Section 105 plan to reimburse hybrid life/LTC policies that fail the qualified insurance test |
| Do consider restructuring from an S corp to a C corp or sole proprietorship if LTC deductions are a priority | Don’t rely on the itemized deduction — the 7.5% AGI floor and age-based caps will eat most of it |
Pros and Cons of Using Section 105 for Long-Term Care Insurance
| Pros ✅ | Cons ❌ |
|---|---|
| 100% tax-free reimbursement — C corps and sole proprietors with spousal employees bypass all age-based limits | Setup complexity — you must create a written plan document, maintain records, and substantiate every claim |
| Full business deduction — the employer deducts reimbursements under IRC Section 162(a), reducing taxable income dollar-for-dollar | S corp and partnership owners are limited — they still face age-based caps and must report premiums as income on their W-2 or K-1 |
| No 7.5% AGI floor — unlike itemized medical deductions, Section 105 reimbursements are not reduced by adjusted gross income | PCORI fee required — self-insured plans must pay an annual fee to the IRS, adding administrative cost |
| Spousal employee needs no W-2 wages — the Section 105 benefit alone can serve as the spouse’s total compensation | Nondiscrimination rules — businesses with multiple employees must offer the same benefits to all or risk taxable excess reimbursements for HCIs |
| Covers the whole family — a plan with family coverage reimburses premiums for the employee, spouse, and dependents | Hybrid LTC policies excluded — the increasingly popular linked-benefit life/LTC products usually do not qualify for tax-free reimbursement |
| Stacks with other deductions — you can combine a limited-purpose 105-HRA with an HSA for additional medical expense savings | IRS audit risk — the spousal employee arrangement draws scrutiny, and the IRS has challenged plans where the spouse’s work was not legitimate |
State-Level Differences That Affect Your Plan
Federal law governs Section 105 plans, but several states add their own wrinkles to long-term care insurance and employer health plan rules.
California
California does not conform to all federal tax exclusions for employer-paid health benefits. The state’s Franchise Tax Board follows its own rules on what qualifies as excludable income. California also has its own long-term care payroll tax program — effective in 2024 — that funds a state-run long-term care benefit. Business owners in California need to track both the federal Section 105 deduction and the state payroll tax obligation.
New York
New York is one of the most expensive states for long-term care. The state offers a tax credit of 20 percent of long-term care insurance premiums paid, up to a maximum credit. This state credit works in addition to the federal Section 105 deduction — making the combination of a 105-HRA and the New York credit particularly powerful for New York business owners.
Washington
Washington enacted the WA Cares Fund, a state-run long-term care insurance program funded through a payroll tax on employees. Workers who purchased qualifying private long-term care insurance before a specific deadline could opt out. This state program does not replace the federal Section 105 framework, but it does affect how Washington employers and employees approach long-term care planning.
Key IRS Forms and Filing Requirements
Using Section 105 for long-term care insurance involves several IRS forms depending on your business structure.
| Business Type | Where LTC Deduction Is Reported |
|---|---|
| Sole proprietor with 105-HRA | Schedule C (Line 14 — Employee benefit programs) |
| C corporation | Corporate return (Form 1120, deductible business expense) |
| S corporation owner (>2%) | W-2 income; personal deduction on Form 7206 |
| Partnership partner | K-1 guaranteed payment; personal deduction on Form 7206 |
| PCORI fee (all self-insured plans) | Form 720 (Quarterly Federal Excise Tax Return) |
Form 7206: Self-Employed Health Insurance Deduction
S corporation shareholders and partners use IRS Form 7206 to calculate their long-term care insurance deduction. This form applies the age-based limits and calculates the allowable amount. The deduction then flows to Schedule 1 of Form 1040.
The form requires you to enter your total long-term care premium, your age, and the applicable age-based limit. It then computes the lesser of your premium or the cap. This is where S corporation and partnership owners lose part of their deduction.
How Section 105 Compares to Other Tax Strategies for Long-Term Care
Business owners have several paths to deduct long-term care insurance. Section 105 is often the best, but not always.
| Strategy | Who Benefits Most | Age-Based Limits Apply? |
|---|---|---|
| Section 105-HRA | Sole proprietors with spousal employee; C corp owner-employees | No |
| C Corp fringe benefit (Section 106) | C corporation owners and employees | No |
| Self-employed health insurance deduction (Form 7206) | S corp owners, partners, sole proprietors without 105-HRA | Yes |
| Itemized deduction (Schedule A) | Anyone without a business deduction option | Yes + 7.5% AGI floor |
| HSA distribution | HSA holders with qualifying HDHP | Yes (age-based caps on LTC portion) |
The HSA deserves special mention. You can use HSA funds to pay qualified long-term care premiums, but the age-based limits under Section 213(d)(10) still apply to the LTC portion. An HSA does not bypass the caps the way a 105-HRA does.
Relevant Court Rulings and IRS Guidance
Shellito v. Commissioner
The Shellito case is the most cited court decision for Section 105 spousal employee plans. The 10th Circuit Court of Appeals sent the case back to Tax Court with instructions to evaluate whether the spouse was a legitimate employee. On remand, the Tax Court reversed its original denial and allowed the deductions — establishing a road map for proving the spousal employment relationship.
IRS Notice 2008-1
This notice governs how more-than-2-percent S corporation shareholders handle health insurance, including long-term care insurance. It requires the S corporation to include premiums in the shareholder’s W-2 and allows the shareholder to deduct them as self-employed health insurance on Form 7206.
IRS Notice 2011-1
This notice stated that the IRS would not enforce the ACA’s nondiscrimination rules for fully insured health plans until further guidance was issued. That guidance has still not been issued as of 2026. This means C corporations can continue to offer long-term care insurance to select employees without violating ACA nondiscrimination provisions.
Revenue Ruling 91-26
This ruling established that a sole proprietor who is also the employer is not an employee for purposes of Section 105. The owner cannot receive tax-free benefits directly — which is why the spousal employee workaround exists.
FAQs
Can a Section 105 plan reimburse long-term care insurance premiums?
Yes. Qualified long-term care insurance premiums are medical expenses under IRC Section 213(d). A Section 105 plan can reimburse them tax-free to the employee.
Does the age-based limit apply to Section 105-HRA reimbursements?
No. The age-based limit under IRC Section 213(d)(10) applies to personal deductions. A 105-HRA reimbursement is a business expense exempt from those caps.
Can an S corporation owner get tax-free LTC reimbursement through Section 105?
No. More-than-2-percent S corporation shareholders must include LTC premiums on their W-2 and deduct them on Form 7206, subject to age-based limits.
Does my spouse need to receive W-2 wages to be covered by a 105-HRA?
No. The Section 105-HRA benefit can serve as your spouse-employee’s sole compensation. No separate W-2 wage payment is required.
Can a QSEHRA reimburse long-term care insurance premiums?
Yes. Long-term care insurance premiums are an eligible QSEHRA expense. The reimbursement is subject to the IRS annual QSEHRA contribution limits.
Do hybrid life/LTC insurance policies qualify for Section 105 reimbursement?
No. Most hybrid or linked-benefit policies do not meet the tax-qualified requirements under IRC Section 7702B and are not eligible for tax-free reimbursement.
Can a C corporation discriminate and offer LTC insurance only to the owner?
Yes. Fully insured accident and health plans have no nondiscrimination rules, and the IRS has not enforced ACA nondiscrimination provisions per Notice 2011-1.
Do I need a written plan document for my Section 105-HRA?
Yes. The IRS requires a formal written plan before reimbursements begin. Without it, reimbursements are not excludable under Section 105(b).
Can I combine a Section 105-HRA with an HSA?
Yes. You can pair a limited-purpose 105-HRA (covering dental, vision, or post-deductible expenses) with an HSA. A general-purpose HRA disqualifies HSA participation.
Does the 7.5 percent AGI floor apply to Section 105 reimbursements?
No. The AGI floor applies only to itemized medical deductions on Schedule A. Section 105 reimbursements are business expenses with no AGI threshold.
What happens if my Section 105 plan fails nondiscrimination testing?
Reimbursements to highly compensated individuals become taxable income classified as “excess reimbursements.” Non-highly compensated employees keep their tax-free treatment.
Must I pay the PCORI fee if I have a 105-HRA?
Yes. All self-insured health plan sponsors, including 105-HRA plan sponsors, must pay the annual PCORI fee on IRS Form 720 by July 31 each year.
Related reading
- Can Long-Term Care Insurance Premiums Be Paid From HSA? (w/Examples) + FAQs
- Are Long-Term Care Insurance Benefits Taxable? (w/Examples) + FAQs
- Is Section 105 Reimbursement Taxable Income? (w/Examples) + FAQs
- Can I Deduct Section 105 Reimbursements? (w/Examples) + FAQs
- Can Section 105 Reimburse Health Insurance Premiums? (w/Examples) + FAQs
- Can You 1035 Exchange Life Insurance Into Long-Term Care? (w/Examples) + FAQs