You can create a health reimbursement arrangement or HRA for your employees. This allows you to reimburse medical expenses tax free up to a preset amount. There are a number of special rules that apply to HRA that don’t apply to other types of insurance coverage.
you can also create a tuition reimbursement plan for your employees. You can reimburse them tax free for college courses that are required for their job performance. You can also provide up to $5250 of tax free reimbursement for other higher education tuition. Amounts more than $5250 must be included in their taxable income.
However, for either one of these benefit plans to be legal, they must be set up in strict accordance with IRS regulations and that includes making the same plan available to all employees without discrimination or favoritism. You really should see a tax professional or a benefits professional if you want to establish these types of benefit programs, so you don’t run into trouble with the regulations.
If you don’t want to set up a proper benefits program, then you may pay your employees whatever salary you want for whatever reason you want. You may increase your brother’s compensation to cover medical or tuition expenses as long as you include it as taxable wages on his paycheck and W-2 and withhold the correct taxes.
