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How to Hire a Spouse and create a Section 105 plan for medical bills

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  • How to Hire a Spouse and create a Section 105 plan for medical bills

    I was curious if anyone on the site (incl Jim Dahle) have gone through the formal process of hiring a spouse on paper and what are the steps and documents needed to set this up legitimately, and I had an additional question about Section 105 plans.

    My wife and I are both doctors and it would be reasonable for me to hire her for medical opinions in certain cases.  (I have a full-time W-2 job but also have 1099 income from moonlighting as a Sole Proprietor/Independent Contractor, so the 1099 business income is what I am referring to.  I just report it on Schedule C each year in TurboTax.)  Also, my wife has some medical expenses that aren't covered by insurance, so I was thinking of setting up a Section 105 plan to pay these pre-tax.  This web site is a pretty good outline of what I'm talking about:

    http://pwbcpas.com/blog/2015/09/02/a-tax-smart-strategy-hire-your-spouse/

    I think their strategy is very interesting, of treating the medical payments as the compensation, therefore no payroll or other taxes are due.  They even cite a 2006 court case in which this approach was tested and found to be solid (IRS challenged and lost on all counts).

    Has anyone else done this?  If I want to actually/legitimately do this, can I do it on my own by just downloading all the documents from some business planning web site and filling out/signing them myself, or do I need to hire a lawyer (hoping the former)?  Thanks!

  • #2
    Read this first. I have read elsewhere on the web that an exception applies if the plan covers only one active employee, but this article appears to refute that. $100/day penalty is pretty stiff. The court case cited in your article was pre-Obamacare. Until I see a current court case similar to yours or can find it in the regs, I would be nervous about using a 105 plan. We had to disband ours after Obamacare, but ours was for multiple employees (owners were never qualified to participate, of course).
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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