Section 105 Medical Reimbursement Plan for Therapy Practices in Orlando, FL

Orlando Health's Behavioral Health program and the University Behavioral Center have expanded capacity in recent years, but Orange and Osceola counties still face mounting demand that outstrips the available therapist workforce. National projections show behavioral health demand growing 49% through 2033 while workforce supply grows by only 11%—and in a fast-expanding metro like Orlando, that gap is felt immediately. A licensed therapist here has genuine options: hospital employment, telehealth platforms, group practices, and private practice. For a small therapy practice owner, offering health benefits is one of the few controllable variables in that competition.

A Section 105 medical reimbursement plan is the IRS framework that allows employers to reimburse employees for qualified medical expenses—including individual health insurance premiums—on a tax-free basis. The reimbursements are deductible to the practice as an ordinary business expense. The employee excludes them from federal taxable income and from FICA (Social Security and Medicare) taxes. For a small Orlando practice that can't absorb the overhead of a traditional group plan, this is often the most practical path to offering a meaningful health benefit.

Why Orlando's Therapy Market Creates Specific Benefit Pressures

The Orlando metropolitan area's therapist market has characteristics that intensify the benefit question. Orlando Health and AdventHealth both run behavioral health programs that recruit LMHCs, LCSWs, and MFTs with full benefit packages. The area's hospitality and tourism economy means a significant share of Orlando residents work jobs without employer health coverage—creating both a patient population with unmet mental health needs and a therapist candidate pool that has strong reasons to value employer-sponsored benefits.

Orange County, which covers most of the Orlando metro, has documented mental health access challenges. The region's rapid population growth—among the fastest in Florida—means the ratio of providers to patients is under constant pressure. Practices that offer health benefits to clinical staff gain a meaningful recruiting edge over practices that don't. A Section 105 plan makes that possible without requiring the practice to meet group plan minimum participation rules or maintain minimum premium commitments.

Core Section 105 Plan Requirements

A Section 105 plan that fails to meet IRS requirements is treated as taxable compensation to employees—eliminating the benefit and creating payroll tax liability. The requirements are specific:

• Written plan document: The plan must exist as a written document before any reimbursements are made. A verbal arrangement is not sufficient.
• Nondiscrimination under IRC 105(h): The plan cannot disproportionately benefit highly compensated individuals. In a therapy practice, this means the owner's reimbursement limit must be set fairly relative to line staff.
• W-2 employment requirement: Only W-2 employees qualify. Contractor therapists, even those who are licensed, cannot participate.
• Substantiation of claims: Employees must provide documentation for each expense—an explanation of benefits (EOB) from the insurer or a receipt showing the nature and amount of the expense.
• Eligible expenses under IRC 213(d): Reimbursements must cover qualifying medical expenses. Individual health insurance premiums are eligible.

Section 105 Plan vs. QSEHRA for Orlando Practices

The Qualified Small Employer HRA (QSEHRA) is the other primary vehicle for tax-free individual insurance premium reimbursement. Understanding the distinction helps Orlando practice owners choose correctly:

• QSEHRA is capped at $6,350 per year for individual coverage and $12,800 for family coverage (2025 limits) and requires the practice to have fewer than 50 full-time equivalents offering no group plan
• Section 105 has no statutory dollar cap but requires annual nondiscrimination testing and must be structured to cover a class of employees fairly
• A QSEHRA requires employees to have minimum essential coverage (MEC) to receive tax-free reimbursements; Section 105 can reimburse premiums for plans that qualify as MEC under the ACA

For a three-therapist Orlando practice where one owner earns significantly more than the others, a QSEHRA's fixed dollar limits can actually simplify compliance. For a practice with more uniform compensation, Section 105's flexibility may offer more planning room.

Setting Up a Section 105 Plan for an Orlando Therapy Practice

1. Audit employment status. Confirm which staff are W-2 employees. Document contractor relationships separately. If you are uncertain about the classification of a therapist who works primarily for your practice, consult a tax professional before establishing the plan.
2. Draft and adopt the plan document. The plan document should specify the plan year (typically calendar year), eligibility criteria, reimbursement maximums, eligible expense categories, and the claims procedure.
3. Run the 105(h) nondiscrimination test annually. This test has two components: an eligibility test (the plan must cover a sufficient percentage of non-highly-compensated employees) and a benefits test (benefits cannot disproportionately favor the highly compensated). Annual testing is required.
4. Set up the reimbursement workflow. Employees submit substantiation monthly or quarterly. The practice approves and reimburses via payroll or separate payment. The reimbursement is recorded as a health benefit expense.
5. Coordinate with ACA marketplace plans. Orlando employees who enroll in individual ACA marketplace plans can have their premiums reimbursed under the Section 105 plan. The interaction with premium tax credits must be reviewed annually.

Florida-Specific Rules for Orlando Therapy Practices

No state income tax: Florida imposes no individual income tax, so the federal exclusion is the entirety of the tax benefit. Reimbursements are excluded from federal taxable wages on the W-2 and are not subject to FICA. The Orlando practice deducts the reimbursements as a business expense on the federal return.

Florida therapy licensure and employment structure: Florida LMHCs, LCSWs, and MFTs frequently maintain licenses while working across multiple settings. A therapist who holds W-2 employment at your Orlando practice and separately provides contracted services to a hospital or telehealth platform is still eligible for your Section 105 plan as a W-2 employee of your practice. The plan eligibility turns on the W-2 relationship, not exclusivity.

ERISA applicability: If your Orlando practice has two or more W-2 employees, the Section 105 plan is likely an ERISA welfare benefit plan. This means you need a Summary Plan Description (SPD) distributed to participants and must comply with ERISA's claims and appeals procedures. Practices with 100 or more participants may also need to file Form 5500 annually.

Common Mistakes Orlando Therapy Practice Owners Make

• Reimbursing expenses before adopting the written plan document. Any reimbursement made before the plan is formally adopted is taxable compensation. Adopt the document first, then reimburse.
• Setting reimbursement limits that fail the nondiscrimination test. A plan that allows the owner to claim $500/month but limits staff to $100/month will likely fail the 105(h) benefits test.
• Including 1099 contractor therapists. Independent contractors cannot participate, regardless of the hours they work at the practice.
• Not distributing the Summary Plan Description. ERISA requires an SPD to be provided to all plan participants. Failure to distribute it can result in penalties even if the plan is otherwise compliant.

Frequently Asked Questions