medical reimbursement plan for sole proprietors

[oceanlovin'ea]

One advantage a sole proprietor has over an S corp is that they can set up a medical reimbursement plan for their employee(s). If their only employee is their spouse, the medical expenses of the family could become a business deduction. Of course, the medical reimbursement plan must be in writing.
My question is: Is it necessary to go through a company who furnishes the Section 105 plans? It might be a better option for some, but is it a NECESSITY? Does IRS code state that it HAS to be through one of these companies?

Second question: What if sole prop has 2 employees? one is wife, who does administrative work part time and one is a part-time worker in the field with him. Is there any way to write the plan so that the wife is covered but not the other worker?

Thanks

Linda, EA

[Kram BergGold]

What I know

The Code does not require someone other than the owner to administer the plan. The arguement for involving a third party is to keep the arrangement on the up and up. How many Schedule C owners are going to do this correctly? The consequence of doing it incorrectly is total disallowance on audit.
I can't answer your second question.

[Sparky]

third party

I agree with both. Third party you are certain. On your own you save money. My husband and I used the 105 deduction for years. At the time I had a third party and thought it was useless overkill. And, for years I did it by myself. No problem each way.

Regarding a second employee; I do not know for certain, but I would guess you would have to extend the insurance to them.

[Gretel]

I don't believe the IRS requires a third party. However, these plans have been challenged and the company I know of has audit guarantee and won. It's some years ago. My gut feeling tells me a client not involving a third party is an easy target. Plus ones would want to maximize the benefits and lower the wages as much as possible unless higher SS payments are desired.

[oceanlovin'ea]

I have a medical reimbursement plan and I take care of it myself. It is documented each month. I have never had a problem. This is a client that I have worked with for years. They were an s corp in another state and moved back here a couple of years ago. He worked for a company for a while but is now on his own. They don't want to be an s corp again.
She does all his scheduling and bookkeeping and invoicing. So she can definitely be an employee. They would qualify for the reimbursement plan. They have 4 children and I don't want to add an unnecessary expense to them.
She will keep very accurate records. She always has. She was well trained on organization by her mother who is one of my best friends.

The second question is still a mystery. Any ideas where I can find an answer to the question. Know any experts in these plans.

Thanks

Linda, EA