Section 105

[dyne]

I received a call from a representative of Base GROUP HRA who stated that one of my clients is interested in them establishing a Section 105 plan which will permit the wife to employee her husband in her business and pay him $1200 per year taxable but provide him $5200 in non-taxable health benefits for him working part time for her. She has NO other employees.
The BASE advertizement says this is for 4 to 9 employees. For last year, she filed a Head of Household return saying she was NOT married. However to qualify for the Section 105 deduction, the person paid under the Section 105 plan MUST be a spouse, according to the BASE representative. So this client would probably NOT be entitled to the almost $4,000 in EIC claimed. Since her net tax was ZERO there would be no tax advantage on her return. In addition she would have to pay this organization $200 per year for this service and pay to have payroll taxes prepared for her husband. This is a new one on me and I thought others might be interested.

[DaveO]

Does she live with her husband?

If she is following the rules for HOH status and not living with her husband I'd be surprised if she would employ him and pay for his health benefits. The 105 plans have been around for a long time. They are a good deal where a bonifide employer employee relationship exists and the profits are there to pay the desired benefits.