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.