SYSOPERATIONALRETURNS / YEAR9,500+REFUNDS DELIVERED$8M+STRATEGIES DEPLOYED400+RETURNS TRAINED GENIE10,000+UPTIME 90D99.998%IRS ACK< 90sSOC 2 TYPE IIATTORNEY-CLIENT PRIVILEGESYSOPERATIONALRETURNS / YEAR9,500+REFUNDS DELIVERED$8M+STRATEGIES DEPLOYED400+RETURNS TRAINED GENIE10,000+UPTIME 90D99.998%IRS ACK< 90sSOC 2 TYPE IIATTORNEY-CLIENT PRIVILEGE
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TAX STRATEGY

Section 105 HRA: 100% Medical Deductions

How a Health Reimbursement Arrangement converts out-of-pocket medical costs into fully deductible business expenses.

Business Strategy◷ 6 min readApril 2026intermediateTaxosAgent Editorial Team
Savings Potential
$2,000–$12,000 annually
Results vary by situation
Eligible:Sole PropLLC

Beyond the 7.5% floor.

Normally, you can only deduct medical expenses on your personal taxes if they exceed 7.5% of your income. For most people, that means $0 deduction. A Section 105 Health Reimbursement Arrangement (HRA) changes that by making 100% of your medical expenses a business deduction.

By setting up an HRA, your business reimburses you (or your spouse-employee) for out-of-pocket medical costs. The business deducts the payment, and you receive it tax-free.

The $8,000 Medical Play

Example — IRC §105

Scenario: You spend $8,000 on braces, co-pays, and vision for your family.

  • Total Medical Spend: $8,000
  • Personal Deduction (at 7.5% floor): $0
  • Business Deduction via HRA: $8,000 (IRC §105)
  • Tax Wealth Reclaimed (at 37% bracket): $2,960

Works best for married Sole Props or LLCs where one spouse employs the other.

How it Works

The structure matters for IRC compliance:

  • Plan Document: You must have a written Section 105 HRA plan document.
  • Eligibility: The plan must be offered to employees — often a spouse in small businesses.
  • Covered Costs: Everything from premiums to dental, vision, and even over-the-counter medications (with a prescription).

Implementation Steps

  1. Adopt the Plan: Sign a formal HRA adoption agreement for your business.
  2. Incur Costs: Pay for your medical expenses as you normally would.
  3. Reimburse: Submit receipts to your business and have the business issue a reimbursement check.
  4. Record Keeping: Keep all medical receipts and the reimbursement log.

Audit Protection

Critical Compliance

HRAs have strict non-discrimination rules. You cannot offer it only to yourself and exclude other full-time employees. If you are an S-Corp, this strategy is more complex and typically requires an ICHRA or QSEHRA setup. Consult a licensed professional before implementing.

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Consult a licensed professional before implementing any tax strategy. Individual results vary.

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