Section 105 Medical Reimbursement Plans for Behavioral Health Practices in Daytona Beach

The Daytona Beach area sits in Volusia County, a region where behavioral health professionals are in high demand and genuinely short supply. Florida's statewide behavioral health workforce dashboard — launched by the University of South Florida — identifies Volusia County as one of the areas facing projected deficits in licensed mental health counselors and clinical social workers through 2035. For a therapy practice owner in Daytona Beach, that shortage cuts two ways: it creates opportunity, and it creates pressure to offer something more than a base salary to keep clinicians on staff.

A Section 105 medical reimbursement plan is one of the most tax-efficient tools available to small behavioral health practices. Used correctly, it lets you reimburse employees for individual health insurance premiums and qualified out-of-pocket medical costs — deducting every dollar as a business expense while employees receive the benefit tax-free. In a state with no income tax like Florida, the savings flow entirely from federal deductions and payroll tax elimination, making the math surprisingly favorable for practices with even one or two W-2 employees.

Why Section 105 Plans Are Especially Valuable for Therapy Practices

Behavioral health and therapy practices occupy a distinct position in the small business landscape. Most are either solo practices or small groups of five to fifteen clinicians. Group health insurance at that scale is expensive — often $600–$900 per employee per month in the Daytona Beach market before the employee's share. Many practice owners skip group insurance entirely, leaving clinical staff to find their own individual ACA marketplace coverage.

That gap is exactly where a Section 105 plan fits. Instead of the practice paying a group insurance carrier, it reimburses employees directly for the individual marketplace or off-exchange coverage they've chosen. The reimbursement is:

• Deductible to the business as an ordinary and necessary expense under IRC Section 105
• Tax-free to the employee — no federal income tax, no FICA payroll taxes on the reimbursed amount
• Exempt from Florida state income tax — because Florida has no state income tax, there is no state tax layer to worry about

For a licensed mental health counselor earning $55,000 annually who pays $450 per month for an ACA marketplace plan, a Section 105 reimbursement of that premium saves them roughly $1,485 per year in federal taxes (at the 22% bracket), while saving the practice 7.65% in FICA payroll taxes — about $413 per year. Combined, the arrangement puts roughly $1,900 back in play annually for that one employee relationship.

Step-by-Step: Setting Up a Section 105 Plan for a Daytona Beach Therapy Practice

Step 1 — Confirm your practice structure qualifies

Section 105 plans work cleanly for S-corps, C-corps, LLCs taxed as corporations, and partnerships with non-owner W-2 employees. Sole proprietors who are the only employee cannot reimburse themselves directly. However, a sole proprietor who legitimately employs a spouse as a W-2 employee can use the plan to cover that employee's family medical costs — which can include the owner's own expenses. Review your current entity structure with a CPA before proceeding.

Step 2 — Draft a formal written plan document

The IRS requires Section 105 plans to be in writing before the plan year begins. The document must specify eligible employees, reimbursable expense categories (premiums only, premiums plus qualified expenses, etc.), and maximum reimbursement amounts. Many CPA firms offer boilerplate 105 plan documents for $200–$500; specialized HRA document providers like Core Documents offer standalone plans starting around $199. Do not reimburse health costs informally without a plan document in place — the IRS can deny the deduction and assess penalties.

Step 3 — Decide what to reimburse

Practices can limit reimbursements to premiums only, or they can expand to include deductibles, co-pays, dental, vision, and other IRS Section 213(d) qualified medical expenses. Broader reimbursement means more value to employees, but also more administrative tracking. For small therapy practices, starting with premium-only reimbursement is often the simplest approach.

Step 4 — Establish a reimbursement process

Employees submit proof of expense (insurance premium invoice, explanation of benefits, etc.) and the practice reimburses through payroll. The amount is excluded from taxable wages on the employee's W-2. Keep documentation — especially proof that the employee had minimum essential coverage (MEC) — for at least three years in case of audit.

Step 5 — Evaluate annually

As your Daytona Beach practice grows, you may eventually cross the 50-employee threshold and become subject to ACA employer mandate requirements. At that point, a traditional group plan or an Integrated HRA may be required. Review the plan each year with your CPA or benefits advisor.

Florida-Specific Advantages for Behavioral Health Practice Owners

Florida's tax environment is uniquely favorable for small practice owners structuring health benefits. The absence of a state income tax means every deductible dollar under a Section 105 plan saves money at the federal rate and nothing more — no complex state tax calculations, no recapture provisions at the state level.

Daytona Beach therapy practices operating in Volusia County must also pay a county business tax receipt and, if located within city limits, a City of Daytona Beach local business tax. These fees are fully deductible as ordinary business expenses on Schedule C or your corporate return. While they're modest costs, systematically tracking all deductible overhead — including the plan document setup cost itself — compounds your total deduction meaningfully over time.

One Florida-specific planning note: if you or your employees purchase individual health insurance through the ACA marketplace using premium tax credits, Section 105 reimbursements must be coordinated carefully. An employee receiving marketplace subsidies cannot also receive employer premium reimbursement under a Section 105 plan without potentially affecting their subsidy eligibility. The QSEHRA (Qualified Small Employer HRA) is the IRS-sanctioned alternative that handles this coordination properly for practices with multiple employees. For a comparison of these options, see our small business health insurance guide.

Common Mistakes Behavioral Health Practices Make With Section 105 Plans

Mistake 1 — Reimbursing informally without a written plan

Some practice owners simply pay an employee's insurance bill directly or add an untaxed "health stipend" to payroll without formalizing a 105 plan document. Without a written plan in place before the plan year starts, those reimbursements are not deductible under Section 105 and may be treated as taxable wages — creating back taxes, penalties, and interest for both the practice and the employee.

Mistake 2 — Applying the plan inconsistently across employees

Section 105 plans must be provided on non-discriminatory terms to employees in similar classifications. You cannot offer the reimbursement only to licensed clinicians while excluding administrative staff of the same employment class. Nondiscrimination testing requirements apply — work with a benefits professional to structure eligible employee classes correctly.

Mistake 3 — Confusing Section 105 with QSEHRA

The Section 105 traditional HRA and the QSEHRA serve similar functions but operate under different rules. The QSEHRA has annual IRS-set contribution limits (in 2026: $6,450 for self-only, $13,100 for family). The traditional Section 105 plan has no statutory cap but comes with more design flexibility and slightly different eligibility constraints. Knowing which vehicle fits your practice structure is essential — using the wrong one can invalidate the arrangement entirely.

Mistake 4 — Forgetting MEC documentation

For reimbursements to be tax-free to employees, those employees must have minimum essential coverage (MEC) — meaning they must actually be enrolled in a qualifying health insurance plan. If an employee lapses their individual coverage mid-year and the practice continues reimbursing, those payments lose their tax-free status. Build a simple annual documentation step into your plan administration.