Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) Frequently Asked Questions (FAQs)

Q: Can owners of C-Corporations (any corporation that, under United States federal income tax law, is taxed separately from its owners) and their families participate in an FSA or an HRA?

A: Yes, they are considered to be W-2 common law employees. However, for an FSA, there may be limits based on discrimination testing requirements.

 

Q: I’m part-owner of a company and have a partner. Are we eligible to participate in an FSA and an HRA?

A: No, sole proprietors and partners are not considered W-2 common law employees and are not eligible to participate in an FSA or an HRA.

 

Q: What types of business entities are not eligible to participate in FSAs or HRAs? 

A: Besides sole proprietors and partnerships, anyone who is more than a 2 percent  owner of an S-Corporation, Limited Liability Company (LLC), or Limited Liability Partnership (LLP) is not considered a W-2 common law employee. For tax purposes, these individuals are treated as self-employed.

 

Q: Are Health Savings Accounts (HSAs) for business owners subject to the IRS regulations issued under Internal Revenue Code Sections 105 and 125?

A: No, any business entity owner may participate in an HSA as long as he or she participates in a qualified High-Deductible Health Plan (HDHP).

 

These are general questions and answers; for more information, please refer to Internal Revenue Code Section 105 for HRAs and Section 125 for FSAs.

 

Comments

Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) Frequently Asked Questions (FAQs) — 2 Comments

  1. Hello,

    My husband is a baystate employee and signed up for a FSA. We do not have our bank cards for the FSA. Who do we contact to have these issued?

    Thank you, Erin Lau

  2. Thank you for your inquiry with Health New England. Please contact your employer group directly for more information on obtaining your bank cards for the FSA. If you have any further questions, please do not hesitate to contact Member Services Monday through Friday, 8am – 5pm. Thank you!

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