Corp Health Insurance Shareholders

[geekgirldany]

I have several clients that are either sole-shareholders of an S-Corp or is husband/wife shareholders. The shareholder health insurance for years has been paid out of biz and none provided for other employees. With the ACA, would that now be considered discrimination to continue this? I found a posting by a CPA a month or so ago stating the IRS has not released any guidelines on it and (if I understood correctly) to continue as in previous years.

Looking for opinions on this.

Also another question, new client is an C-Corp, shareholder husband, wife employee, and one other employee. Shareholder is wanting to start paying health insurance for his family out of the business. I do not think this can be done because there is another employee and would be discrimination. Same as S-Corp but I know C-Corp is different.

Thank you
D

[DaveinTexas]

My 2 cents

From the IRS FAQ page regarding ACA guidelines:

40. I am a small employer with 30 employees. How do the Employer Shared Responsibility provisions (Code section 4980H) affect me?
They don’t. Employers that employ fewer than 50 full-time employees (including full-time equivalents) in their businesses are not subject to the Employer Shared Responsibility provisions. The vast majority of businesses fall below this threshold.

My opinion is this will not be considered discrimination but from what I have learned in seminars is you should (I don't know if this is mandatory) type up a document that explains to the employees not covered by the employer's plan that certain employees do receive health plan benefits and some do not. For example, the letter I gave to our employee states that only Corporate Officer/Employees receive health benefits while other non Officer/Employees do not.

The only guidance available indicates that IF the S Corp reimburses ALL employees (officer/2%'ers, non 2%'ers) then the reimbursements are wages to ALL employees. This means the Non 2%'er will have taxable income with no 1040 offset; that sucks! There isn't any mention, that I know of, of discriminating against non 2%er's. I would assume this guidance is coming.

We will have to follow the courts and future IRS guidance as to whether or not this is considered discrimination (it seems to be using my common sense).

Not sure about the C Corp question; above my pay grade.

[TaxGuyBill]

I think it's discrimination, against the law, and subject to penalties. However, from what I've read, they may not be enforcing it until they come out with more Regulations.


Sorry for the technical gibberish, but here is my reasoning:


Title 42, Section 300gg-16 disallows discrimination for highly compensated employees (as defined in IRC 105(h)(5), see second link) for a "group health plan" (see third link for definition).

http://www.law.cornell.edu/uscode/text/42/300gg-16

http://www.law.cornell.edu/uscode/text/26/105#h_5

http://www.law.cornell.edu/uscode/text/42/300gg-91#a

Although the Tax Code (Title 26) exempts employers (from tax penalties, etc.) with "less than 2 participants who are current employees", I DON'T see that exemption in Title 42 (Public Health and Welfare). HOWEVER, I might be missing it. The employer could be subject to a $100 per day per individual.

http://www.law.cornell.edu/uscode/text/26/9831#a

http://www.law.cornell.edu/uscode/text/42/300gg-22#b_2_B

Title 42, Section 300gg-21 lists exceptions, and I don't see anything there.

http://www.law.cornell.edu/uscode/text/42/300gg-21

[geekgirldany]

Thank you both for responding.

I will dig around some more in the Tax Codes you provided Bill and get a good understanding. I appreciate you taking the time to do that.