Another Affordable Care Tax Credits Question

[RightOn]

Taxpayer is the sole (100%) owner of a S-corp. He receives a W-2 from the S-corp every year and therefore, technically, he is considered an employee of it. Through the years, the S-corp has been paying for his health insurance premiums and then report it in his W-2. But it is an individual policy under his own name and no other employees are covered.

In order to quality for Affordable Care Tax Credits, one of the requirements is that "employer coverage is not available". So is "employer coverage" considered available under his situation? He has called an insurance agent and was told that it will be fine if the existing policy is cancelled before 1/1/2014. Does anyone hold a different opinion?

And assuming that he does qualify for the tax credits, if the S-corp still keeps paying for his premiums and report it on his W-2 (that is what the IRS requires a taxpayer to do in order for the self-employed health insurance deduction), will it make the policy become an employer-sponsored one and therefore violate the requirement?

[appelman]

I have exactly the same situation.

I have assumed that as an owner/employee with the policy in his name, it would not be considered "employer coverage" in the usual sense. But I'd like to hear any other takes on this scenario.

[RightOn]

I have assumed that as an owner/employee with the policy in his name, it would not be considered "employer coverage" in the usual sense. But I'd like to hear any other takes on this scenario.

Thank you appleman. I would like to hear more opinion too. Everything is so new and a lot of issues still need further clarification. At this time, we have to use our own interpretation in a lot of areas. I hope the IRS will not penalize us just because an interpretation is not correctly made.

[ChEAr$]

Just the opposite IMO, since the reimbursement for premiums are added to his W2, box 1. That means he's an employee and corporation is paying for his health insurance.

So the corporation gets to deduct what IT paid, and since employee didn't pay it (disregard deduction for SEHI since it's a washout of the added W2 amount), he gets no tax credit.

I wish it were otherwise, since it applies to yours truly.

[RightOn]

Just the opposite IMO, since the reimbursement for premiums are added to his W2, box 1. That means he's an employee and corporation is paying for his health insurance.

So the corporation gets to deduct what IT paid, and since employee didn't pay it (disregard deduction for SEHI since it's a washout of the added W2 amount), he gets no tax credit.

I wish it were otherwise, since it applies to yours truly.

I can understand your reasoning if the S-corp gets the tax credit so the employee cannot get it again. But the S-corp is not qualified for the new Small Business Health Care Tax Credit either (premiums paid for 2% owner does not count). So neither the S-corp nor the owner gets the tax credit, isn't it kind of unfair?

[John of PA]

This appears to me as a clear case that he has insurance available by his employer (his S Corp) and therefore cannot get the credits on the exchange. My understanding is he still can buy insurance on the exchange but does not get the premium reduction credits.

[appelman]

Are we clear what we are talking about?

Although nobody has actually used those words, there is an implication here that there is some kind of double-dipping issue involved. If all we are considering is eligibility for the insurance premium subsidy, any subsidy received would reflect as a smaller deduction for the S-Corporation, a smaller addition to the owner/employer's wages, and a smaller SE health insurance deduction. So there is no double dipping at all. The owner/employee is not buying insurance IN ADDITION to that "provided by an employer;" the insurance he buys BECOMES the insurance "provided by an employer." Though I claim no infallibility, I'll stick with my gut reaction given in my earlier response.

[RightOn]

I think we also have to consider the fact that having the premiums paid by the S-corp and then put it on his W-2 is not the taxpayer's own preference. It is a procedure required by the IRS in order for the self-employed health insurance deduction.

[appelman]

And remember...

The S-Corp reports it as officer compensation, not as employee benefits.

I think we also have to consider the fact that having the premiums paid by the S-corp and then put it on his W-2 is not the taxpayer's own preference. It is a procedure required by the IRS in order for the self-employed health insurance deduction.

[DaveO]

I attended a seminar recently and a section was devoted to the ACA. This exact situation was described and in the opinion of the presenter would pass muster. I intend to employ the strategy myself.