If we include these premiums in the wages and pay all the taxes including SS and MT can shareholder still take the Above the line deduction instead of Med on SCh A?
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Per your original post
"I have husband and wife both over 65, that ownes 100% of S-Corp. They have 2 salaried employees. S corp pays for h and w supplemental health care. Is included in their w-2 box 1 but not the other boxes."
By paying this, they are in essence establishing a plan of health insurance coverage. The IRS has stated that Medicare Supplement Premiums are health insurance for purposes of the SE deduction" This was three or four years back. Further, they are not covering any employees (one of whom would be eligible).
I am not aware of an example that addresses an employer paying the S-Corp owner's Medicare Supplement Premiums only and any exemption under the DOL rules (100/day X # Employees).
So, I would stop this until further guidance is issued.
The amounts paid do not seem to be eligible for the AGI deduction since there is not a group health insurance plan established. Most respected tax columnists I have read have reached this conclusion. As such, I am not taking a deduction for S-Corp shareholder premiums on the front page 1040 (for those with employees and no group plan established) until guidance is issued. I will amend if it is allowed.
The sad thing is there is a lot of confusion in this area right now, and the only thing we can do is protect our clients based on what we know now.
The only thing we know now is an IRS Notice 2008-1 that states you can reimburse S-Corp owner health insurance, include in box 1, and deduct on 1040.......Then we have a DOL rule that states you can't reimburse premiums for individual policies or risk violating market reforms, discrimination if only some are eligible, and then a fine for 100/day x #EE's.
Why risk the deduction over the 100/day.Last edited by TXEA; 01-19-2015, 07:13 PM.Comment
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IRS Notice 2008-1 was issued prior to Obamacare. So whatever it says is irrelevant now. The new rule is you can't have S corps reimburse employees for their health insurance, period, without risking the $100 per day penalty. The only exception to this is if there is only one employee. Reimburse 2 or more, and you have a problem.Originally posted by TXEA View Post
One glimmer of hope for all of you who did it wrong for 2014. IRS Notice 2013-54 says that reimbursing health insurance with AFTER TAX money is not a group plan, and therefore not subject to the ACA rules. Thus, I would simply tax the S corp shareholders for the reimbursement (like you are supposed to do anyway for S corp shareholders), and include the reimbursement in SS and Medicare (unlike before), and then NOT try to take a deduction on the front of the 1040. I would then advise the client to go to the SHOP and have the S corp pay for the employee's health insurance through the new government approved way of buying health insurance. Do not, I repeat, DO NOT try to reimburse health insurance premiums anymore. That is now a no no.Last edited by Bees Knees; 01-19-2015, 06:05 PM.Comment
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Where do you see that?Originally posted by Bees Knees View Post
The November 2014 FAQ from the DOL (Question 1) seems to indicate that it doesn't matter if they are pre-tax or after tax.
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I see that.Originally posted by TaxGuyBill View Post
But that seems to contradict page 2 of Notice 2013-54:
B. Employer Payment Plans
Revenue Ruling 61-146 holds that if an employer reimburses an employee’s
substantiated premiums for non-employer sponsored hospital and medical insurance,
the payments are excluded from the employee’s gross income under Code § 106. This
exclusion also applies if the employer pays the premiums directly to the insurance
company. An employer payment plan, as the term is used in this notice, does not
include an employer-sponsored arrangement under which an employee may choose
either cash or an after-tax amount to be applied toward health coverage. Individual
employers may establish payroll practices of forwarding post-tax employee wages to a
health insurance issuer at the direction of an employee without establishing a group
health plan, if the standards of the DOL’s regulation at 29 C.F.R. §2510.3-1(j) are met.Comment
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An employer payment plan, as the term is used in this notice, does notOriginally posted by Bees Knees View Post
include an employer-sponsored arrangement under which an employee may choose
either cash or an after-tax amount to be applied toward health coverage. Individual
employers may establish payroll practices of forwarding post-tax employee wages to a
health insurance issuer at the direction of an employee without establishing a group
health plan, if the standards of the DOL’s regulation at 29 C.F.R. §2510.3-1(j) are met.
That is not a reimbursement of insurance premiums. It is just the employee telling the employer WHERE to deposit their WAGES. This is the employee saying "send $100 to my insurance company, $100 to my ex-wife, $100 to my savings account and the rest into my checking account".Comment
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Soooooooooo......Originally posted by TaxGuyBill View Post
When my S corp client comes in with his usual payments to shareholder employee's health insurance, I will ask the client: "Starting in 2014, you stopped the HRA plan, correct? (wink wink) And instead you just simply told the S corp to forward some of your wage to your health insurance company, correct? (wink wink)."
Problem solved.Comment
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Sure. :-)Originally posted by Bees Knees View Post
But I would SOLIDLY document the taxpayer is directing a specific dollar amount is to be forwarded to the the insurance company, and not pay 'the cost of insurance'. However, the tax benefits would be lost.
Because the insurance premiums were not being reimbursed, the amount of "wages" are completely taxable and are not eligible for the Self Employed Health Insurance deduction. Because of that, it would just be easier and potentially less problematic if the taxpayer wrote the check, rather than the corporation.Comment
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I believe that is what I said in post 18 above.
The point is we are trying to figure out how to solve 2014 issues after the fact. Most did not know that HRAs were dead in the water starting in 2014. So now we have this mess of S corp clients doing it wrong and wondering how to get out of the $100 per day penalty.Comment
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Yes, but it's no longer a "reimbursement". The employee may have increased wages or a bonus, but it can NOT be a "reimbursement", or it is subject to the penalty.
Sorry I went off on a tangent. Yes, the big question is what to do now. §4980D(c) says the penalty might be waived if it is "corrected" within 30 days of finding out the error. Unfortunately, we don't really know what "corrected" means. Does it just mean doing it correctly from now on? Or does it mean we need to fix everything retroactively?
If it needed to be fixed retroactively, we might need the employee to 'pay back' the reimbursements to undo it. Then the company may choose to give the employee a taxable 'bonus' that is NOT directly connected with insurance premiums. On the other hand, realistically the IRS isn't going to enforce this for 2014. Everything is just too muddy.Comment
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