Health Spending Accounts for Professional Corporations
With a Health Spending Account Professional Corporations can reduce their corporate taxes while rewarding owners and their employees with a comprehensive health care plan. This comparatively simple and cost-effective benefit plan enables Professional Corporations of all size to write-off the health expenses of the owners, their employees, and their families.
Not surprisingly, Professional Corporations represent one of our largest customer groups.
A tax deduction ideal suited to Professional Corporations
Traditional health insurance benefit plans are typically neither well suited nor cost-effective for smaller businesses, including most Professional Corporations. Health Spending Accounts (technically known as ‘self-insured’ Private Health Services Plans or PHSPs) were created to fill the needs of these smaller businesses, while also providing a more flexible and cost-effective alternative to larger corporations fed up with traditional insurance plans.
Health Spending Accounts are maximally profitable for single owner-operator Professional Corporations and family run professional corporations where they offer a net cost savings, as well as flexibility and ease of administration.
How would an HSA work for your Professional Corporation?
- You decide how many employee classes you want (typically 1-3), and the maximum annual HSA benefit available to each class. This is the amount that each employee within a given class can claim in eligible health expenses each year. Thanks to the flexibility of our plan, if necessary you could limit enrollment in your plan to only the highest employment class (such as “Executives”). If you are a sole owner-operator, you will need only one class.
- You and any other employees enrolled in your benefit plan can submit receipts through our online submission form for any eligible health and dental expense incurred by themselves and their families.
- We review submitted health claims to ensure eligibility, and then invoice your corporation for the amount plus our 5% administration fee and applicable taxes.
- After your corporation pays the invoice, we reimburse the employee 100% of their eligible claim amount. The full amount is a regular business expense write-off for your business, and claim reimbursements are a tax-free benefit in the hands of the employee.
- At the end of each plan year your maximum benefit levels will renew at the same level as the previous year (unless you would like to make changes). Any unused amounts do not accumulate, cannot be withdrawn by the employee, and are not billed to the corporation.
- Your corporation only pays for approved claims. There are no set up fees, no annual fees, no transaction fees, no stale account fees or termination fees, and no upfront payments or deposits.
Are all owners eligible to be included in their benefit plan?
Health Spending Accounts are intended for employees only. Shareholders of a Professional Corporation who are not also active employees of the business cannot be included. This means that the owner must be regularly and continuously involved in business operations to be included under the benefit plan. Owners can further demonstrate their status as an employee by receiving at least part of their income as regular T4 earnings.
Learn more about Health Spending Account eligibility.
What is the maximum benefit size for Professional Corporation?
There are no particular limits placed on the HSA benefits offered to arm’s length employees. However, as an owner of a Professional Corporation your Health Spending Account does have restrictions. Your HSA cannot be unlimited, must be “reasonable”, and cannot be unfairly disproportionate to that offered to arm’s length employees also covered by your plan.
What are the advantages of a Health Spending Account for Professional Corporations?
- Write off 100% of your family’s health and dental expenses as a regular business expense. For Professional Corporations Health Spending Accounts are one of the few ways that an owner can legally transfer wealth out of their corporation tax-free. This approach also generates considerably more savings than the alternative, which is to claim your medical expenses on your personal income tax return using the Medical Expense Tax Credit (METC). You can see examples of the additional savings created by a Health Spending Account using the table below.
- Protect and reward your employees with cost-effective health coverage. With our industry-leading pricing structure all employers can afford to offer their employees a highly desirable heath benefit. More expensive traditional health insurance plans typically come loaded with health service restrictions and limitations, and only partial cover health and dental claims. With our fully flexible 100% coverage, Health Spending Accounts are a more popular choice for employees who tend to view it more akin to a cash bonus. Health Spending Accounts also have a hidden cost-savings advantage over traditional health insurance plans. As a so-called ‘secondary’ form of health coverage, employees must use any traditional health insurance coverage they may have first (such as a spouse’s plan), before submitting remaining amounts to their Health Spending Account plan.
- Keep your employees healthy by using a Health Spending Account to encourage them to visit the dentist and to get their prescriptions filled.
How much could you save with a Health Spending Account?
The examples below cover three scenarios: an owner making $50,000, $100,000 or $150,000 per year in gross annual income, and compare the net benefit of paying for personal health expenses through a corporation rather than out-of-pocket using the Medical Expense Tax Credit (METC).
Importantly, for the purposes of these calculations we conservatively assume that the owner lives in Ontario where Provincial Premium Tax (PPT) and Retail Sales Tax (RST) are charged on health benefit plans. In all other provinces the savings would be even greater (excluding Quebec and Newfoundland).
Owner’s Gross annual income
$50k
$1,500 HSA
$3,000 HSA
$4,500 HSA
For example, if you earn $50,000 in gross income, live in Ontario, and use EasyHSA to pay for $1500 in personal health expenses for you and your family, you would save up to 19% or $284.61 (after-tax) compared to paying-out-of-pocket and using the Medical Expense Tax Credit (METC). This calculation takes into consideration our fees (which are the lowest in the industry), all Ontario taxes, as well as 2020 METC and personal income tax rates. These calculations serve only as an example, your accountant would be able to offer you a better understanding of your particular tax situation.
Owner’s gross annual income
$100k
$1,500 HSA
$3,000 HSA
$4,500 HSA
For example, if you earn $100,000 in gross income, live in Ontario, and use EasyHSA to pay for $1500 in personal health expenses for you and your family, you would save up to 35% or $522.87 (after-tax) compared to paying-out-of-pocket and using the Medical Expense Tax Credit (METC). This calculation takes into consideration our fees (which are the lowest in the industry), all Ontario taxes, as well as 2020 METC and personal income tax rates. These calculations serve only as an example, your accountant would be able to offer you a better understanding of your particular tax situation.
Owner’s gross annual income
$150k
$1,500 HSA
$3,000 HSA
$4,500 HSA
For example, if you earn $150,000 in gross income, live in Ontario, and use EasyHSA to pay for $1500 in personal health expenses for you and your family, you would save up to 37% or $549.91 (after-tax) compared to paying-out-of-pocket and using the Medical Expense Tax Credit (METC). This calculation takes into consideration our fees (which are the lowest in the industry), all Ontario taxes, as well as 2020 METC and personal income tax rates. These calculations serve only as an example, your accountant would be able to offer you a better understanding of your particular tax situation.
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