Health Care Tax Credit

[AZ-Tax]

I conducted a search and could NOT locate a discussion on this topic. I have a client who is self employed and is currently on his spouse's employers health plan. The employed spouse is considering terminating her employment to help in the her spouse's self employed business. There is no employees. If they go with the "cobra" health plan after termination, does the 35% tax credit apply and if so is this a "refundable" or "non refundable credit"?

[AZ-Tax]

I think I may have found my answer from IRS website..

14. If an owner of a business also provides services to it, does the owner count as an employee?

A. Generally, no. A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.

15. Do family members of a business owner who work for the business count as employees?

A. Generally, no. A family member of any of the business owners or partners listed in Q/A-14, or a member of such a business owner’s or partner’s household, is not considered an employee for purposes of the credit. Thus, neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit. For this purpose, a family member is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.

http://www.irs.gov/newsroom/article/0,,id=220839,00.html

[PIGLEE]

Make your wife an employee, and pay her on a W-2. Then look into the Medical Reimbursement Sec 105 plans. See TTB page 5-11.

I did this for years, it is a great plan and can save you a lot of money. There are companies that will operate it for you, well worth it, in my opinion.