GBurns

We are just getting our wits warmed up so as to weather this cold winter season.

I think that you are confusing the reimburseing of medical expenses incurred by an employee which is a function of HRAs with the deduction of expenses by an employer. These are 2 separate issues. The funding of an HRA by an employer is a business expense (what he classifies it as on his books is irrelevant to this issue, it might very well be lumped with insurance premiums and called Employee Health Benefits Expense Account). The reimbursing of an employee from an HRA requires a medical expense. It is possible that vesting could be an issue, but that would depend on the specifics of the plan design.

You posted "it is an advance payment ". Advance payment of what? Mortgage? If withholding is not a tax what is it? By that logic, since both Quarterly Estimated Tax paid by SE's etc and taxes paid with a 1040 are also refundable if either the SE's return is filed or a 1040X etc is filed within 3 years, those amounts are also not taxes? What do you think the term "Payroll Tax" means and includes?

Isn't that what I said?

What do you think of setting up the domestic as a business then contract with the business for domestic services and have the business have a solo k or whatever for its sole employee?

I was not aware that there was any way to elect that 10% or any particular % be withheld on a W-4P. The 10% rate is when the person DOES NOT CHOOSE to have no withholding. If as you posted "he chose to have FEDERAL taxes withheld" then there would withholding at rates that very likely would not be 10%. In any case I do not see that he could have chosen 10%.

It seems logical that the check was never delivered to the participant. It is also logical that you would have no forwarding address because that is usually only given to the post office. Have you made use of the Postal Service's fowarding or Address Correction services? Have you used the NCOA services available either from the Post Office or private providers? Have you made use of the IRS forwarding or location services? Have you searched this Board for previous threads on this subject or done a Google search? In other words have you really made a good faith effort or is it that all you have done is mail a check in an envelope? Trying to pass it off on the state without some might leave you vulnerable and liable if the participant finds out 1 day in the future.

Do you know for sure that the check was even received?

The original post said nothing about "deducting the HRA contributions at the beginning of the year " which would have been impossible and is never done anyhow. Business expense deductions are not taken at time of expense (or contribution in this case) nor taken at the start of the year. They are taken whenever the business does its tax return for that period. The deduction of business expenses are a function of section 162. It is not subject to HRA regulations in the same way that an employer's payment of employee health insurance is a deduction allowed under section 162 not 105, 106 or 125. A business that funds the employee's HRA accounts with an up front lump sum at the start of each year is entitled to take the full deduction of that amount on the tax return for that year if the money cannot revert to the employer and even in that case that is questionable. The money is no longer the employer's and so becomes a business expense in the full amount. The employer's expense has no relationship to the incurring of medical expenses. It is the employee's use of the money that is conditioned by incurring medical expenses. When the employee chooses to use it or leave employment and take it etc etc is no concern as far as the business expense is concerned.

If you think that withholding is not imposed the you might want to reconsider after looking at the attached and the other cited cases: http://www.usdoj.gov/tax/txdv04559.htm There are many other such cases.

Filing the tax return for that reason is wise. Although there was no distribution therefore no withholding therefore no deposit, you should still file a $0 945 and a subsequent $0 1096. Not filing $0 Form 941 and other Forms is something that creates audit problems for many small business and self employed persons. The problems it creates are a big burden aside from being a trigger for audits. It should be no different for plans.

I wasn't going anywhere unless you think that plans etc are "deemed 945". Witholdings from Qualified plans along with certain other nonpayroll items are reported on Form 945. Reporting has nothing to do with being deemed. Being reported on a form does not make anything deemed.

Pub 15 Circular E Section 11 usually in the third paragraph with bold type discusses "Separate deposit requirements for nonpayroll (Form 945) tax liabilities" Note the caveat regarding the $2500 threshold regarding accuracy, if applicable. Neither qualified plans nor withholdings from qualified plans are deemed 945.

It is not integrity that is the issue nor is it what you should be concerned about or trying to defend. "....why would so many people be doing it? is also not the issue and neither is that all you were trying to do as per your post. The majority of individual 401(k) plans do not have an intended rollover muchless a rollover from an unclear source. I also doubt that there are many with corporate entities that might not qualify. I also doubt that there are many set up with the initial intention of providing an immediate loan. So it does not matter that so many people are doing it. That IT is not what you are doing anyhow. That so many people are doing it does not mean that it is being done correctly either. And you neither understand what it is that "so many people" are doing nor what the problems are with what you suggested in your post.

The topic is "HRA Funding"., so I do not understand why you would post that "This discussion has nothing to do with HRAs". If "You cannot prefund future years' medical expenses with an HRA" then what would be the purpose of allowing rollovers? Rollovers are to be used to pay expenses. At time of rollover those expenses have not yet have been incurred. So the rollover is a "set aside" for expenses to be incurred. "To be incurred" is synonymous to "future expenses". "Set aside" is is synonymous to "prefund". As a logical result the rollover prefunds future medical expenses. What have I misunderstood? 419 is applicable to VEBAs and would only be applicable if an HRA "Trust" was a VEBA, but vebaguru might have some reason why he thinks otherwise.

"I am unsure why some think it is a complicated thing to do. Setting up and maintaining a one person plan is not complicated at all. " 2 of the simplest things to set up in the employee benefits arena are section 125 cafeteria plans and MERPS. Yet a few years ago MHM, which is probably the largest supplier of plans, discovered and announced that the vasy majority (I think over 90%) of the plans that they took over or looked at were not compliant. Some were never set up properly, some had document problems, and some were not maintained properly. I suspect the same in other plans. In looking at much over 200 hundred assorted 125, 105, 403(b), 401(k), DBRA plans in the last 8 years I cannot remember seeing 1 that did not need work, sometimes major work. I do not provide such work so I did not have any stake in the corrective work. Ashlea, It might seem easy and simple, but that probably can be attributed to the old saw..Ignorance is bliss.

I think that she might not be understanding what "administering the plan" means. Are there any employer contributions? If no, then the employees should be allowed as many or any investment opitions/providers as they see fit and that the payroll system etc can handle. The "administration" of the plan selected by the employee would not matter to the employer and really is not their concern. If yes there are employer contributions, Why not do as mbozek advises, and have each provider as an option? I suspect that she thinks that each provider is a separate plan, and I wonder what is meant by "a coverage issue that would require constant monitoring". In general there seems to be misunderstanding of what a 403(b) plan is and how it operates.

Good point. If it is so obviously simple, one has to wonder why the question was asked. However, there could be complications regarding source of funds and qualification of the LLC as a business. It also could be that there is no SEP, no 401(k) nor any current eligible vehicle from which a rollover can be made. The term "rollover" might not mean rollover and although asked for clarification as to what is this vehicle/plan that the "rollover" will be coming from, Ashlea still will not say. So maybe we should not even bother to speculate as to what can be done until we know where the "rollover" will come from.

What kind of plan will the rollover come from?

The vast majority of medical providers provide services through a corporate entity, whether it be the hospital, the pharmacy, the eyeglass store, the clinic or medical practice. Where is there any requirement that a 1099 be issued to a corporate entity?

Again, What does this have to do with HRAs?

If he emails you off Board then he would not have the benefits of rebuttals, counter arguments or anything else that might alert him to any incorrect statements that you might make or clarifications that might be needed. For example you posted : "Our welfare benefit plans that offer disability insurance comply with the HRA regulations" What does disability insurance have to do with HRAs? While I think that this is a typo, it might very well be what you referred to as "errors, misstatements and outright lies". How is anyone to know if you go off Board? Or is there a good reason for secrecy such as protection of intellectual property?

I read it as being that he has a sep. (as in separate) full time job.

Assuming that the plan can be set up for the LLC and that it will qualify as a business, Where will this $50,000 rollover come from? From the plan at his full time place of employment? What would be the distribution event etc?

I understood the post as meaning that the union employees did not receve any benefit because they were always excluded. If as posted "The plan has always excluded union ee's!" whether because they were subject to CBA or some other agreement with the union, they are excluded employees and were never plan participants. So why would employees who are not plan participants be on the census? Census of what? Eligible employees, participants or of all employees (whether participants or not, ineligible or not)? Maybe I do not understand what the "census" is??