Health Insurance Premium Deduction

[nkustura]

My clients, husband and wife, are shareholders (more than 2%) of their S corp business. They obtained health insurance on their own in 2014. They are also employees (receive W2) from S corp, but insurance policy was obtained by them and not by S corp. Where can the insurance premiums be claimed on their tax return? I don't think they can take health insurance deduction as self-employed on 1040 since they don't have income on schedule C. My only option is Schedule A insurance premiums, but I am thinking there may be another option. Your help is greatly appreciated.

Thanks

[Mike U]

Health Insurance Premium Deduction

Since the S-Corp did not buy the insurance and the owner of the S-Corp is paying the premium from his Checking account and NOT the S-Corp Checking account. I would say your only option is Sch A.

If he wants to keep it separate from the business, it looks like he cannot call it self employed Health Insurance. This being he is a S-corp. and the insurance purchase thru the S-Corp must be added back into the W2 box 1.

[nkustura]

Thanks

If the payment for insurance was made from S corp account and S corp included the payment on W2 subject to taxes (box 1,3,5), would they be able to take self employment health insurance deduction on form 1040 in this case?

[TaxGuyBill]

If the payment for insurance was made from S corp account and S corp included the payment on W2 subject to taxes (box 1,3,5), would they be able to take self employment health insurance deduction on form 1040 in this case?

If the corporation actually reimburses the insurance premiums, it would only be included in box 1. Yes, if it was included in box 1 and there are at least an equal amount of 'other' wages from the corporation, the Self Employed Health Insurance deduction would be allowed on Line 29 of their personal tax return.


Just be aware the corporation can only reimburse premiums for ONE employee. If it does it for more than one employee, it's an ACA violation subject to gigantic penalties.

I believe this is considered a "self-insured" health plan, and the corporation will need to file Form 720 for the annual $2 excise fee.

It is also probably considered an employer 'health plan' and the Premium Tax Credit would not be allowed if the insurance was bought on the Healthcare Marketplace.

[Burke]

If the payment for insurance was made from S corp account and S corp included the payment on W2 subject to taxes (box 1,3,5), would they be able to take self employment health insurance deduction on form 1040 in this case?

No, although they can take it on Sche A as an itemized deduction. If the insurance is in the TP's name and not a group subsidized plan, AND he has other Sche C income that exceeds the income limitation, he may still be able to take the SEHI.

[TaxGuyBill]

No, although they can take it on Sche A as an itemized deduction. If the insurance is in the TP's name and not a group subsidized plan, AND he has other Sche C income that exceeds the income limitation, he may still be able to take the SEHI.

Why do you think it doesn't qualify for the SEHI deduction?

http://www.irs.gov/publications/p535/ch06.html#en_US_2013_publink1000208843

[Burke]

I just reviewed a long thread on this subject in January, to which Bees Knees and Lion contributed and which you were also on. See post #23 from yourself in which it looks like you answered this question. It is quite confusing.

[TaxGuyBill]

I just reviewed a long thread on this subject in January, to which Bees Knees and Lion contributed and which you were also on. See post #23 from yourself in which it looks like you answered this question. It is quite confusing.

Which thread? Is it this one? I don't see an answer from me on post #23.

http://forum.thetaxbook.com/showthread.php?24500-Health-Insurance-reimbursement-gt-2-shareholder&highlight=SEHI

As long as there is only ONE person being reimbursed, reimbursing is okay. If there are other employees and only one person is reimbursed, there MIGHT be discrimination (I've recently found out it is not subject to the ACA discrimination, but could be subject to ERISA discrimination).

If the 2% shareholder is being reimbursed by the corporation, it only goes in box 1 of the W-2. If there is at least an equal amount of other corporate wages, it is deductible as the Self Employed Health Insurance deduction on Line 29.


HMMMMMM ... Now that I think about it, I think I MIGHT take that last sentence back for THIS particular situation. If the spouse (also a 2% shareholder) was OFFERED health insurance through the corporation, that would mean that they were eligible to participate in a spouse's employer-subsidized health plan, right? If so, that would that invalidate the SEHI deduction. I never thought of that aspect before.

If the spouse was not offered it, they could be subject to ERISA discrimination. Hmmmm.


I'll need to think about it a bit more, but based on my last few sentences, I think Burke may be right. They may not be eligible for the SEHI deduction.

[geekgirldany]

In the past I would include it on their W-2s and deduct as SEHI.... but now it is different. I ran into the same situation, I did not deduct the health insurance as SEHI for the husband and wife. Wish the IRS would provide new information on this situation.

[Lion]

I'm still a bit confused on this also. The DOL came out with a memo in November. So, now we have to worry about the IRS, Congress, ERISA, DOL, and probably the state DOL as well.

[CVTax]

I think the husband and wife count as 1, not 2 employees - for an S-Corp. As long as it is in box 1, it can be deducted on line 29. The policy does not have to be in the name of the S-Corp.

[TaxGuyBill]

I think the husband and wife count as 1, not 2 employees - for an S-Corp. As long as it is in box 1, it can be deducted on line 29. The policy does not have to be in the name of the S-Corp.

Where do you get that from?

For purposes of being under 100 shareholders, that is correct, but I haven't seen anything like that in relation to the ACA.

[kamckinley]

If the payment for insurance was made from S corp account and S corp included the payment on W2 subject to taxes (box 1,3,5), would they be able to take self employment health insurance deduction on form 1040 in this case?

Yes. From the IRS website: http://www.irs.gov/Businesses/Small-...surance-Issues

Treating Medical Insurance Premiums as Wages

Heath and accident insurance premiums paid on behalf of the greater than two percent S corporation shareholder-employee are deductible and reportable by the S corporation as wages for income tax withholding purposes on the shareholder-employee’s Form W-2.

These benefits are not subject to Social Security or Medicare (FICA) or Unemployment (FUTA) taxes. The additional compensation is included in Box 1 (Wages) of the Form W-2, Wage and Tax Statement, issued to the shareholder-employee, but would not be included in Boxes 3 and 5 of Form W-2.

A 2-percent shareholder-employee is eligible for a deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage is established by the S corporation and the shareholder meets the other self-employed medical insurance deduction requirements. A deduction used to arrive at AGI is referred to as an above-the-line deduction. If, however, the shareholder or the shareholder’s spouse is eligible to participate in any subsidized health care plan then the shareholder is not entitled to the above-the-line deduction.

A medical plan can be considered established by the S corporation if the S corporation paid or reimbursed the shareholder-employee for premiums and reported:

- The premium payment
- Reimbursement as wages on the shareholder-employee’s W-2

This can also be found in Pub 535: http://www.irs.gov/publications/p535...link1000208843

[CVTax]

Where do you get that from?

For purposes of being under 100 shareholders, that is correct, but I haven't seen anything like that in relation to the ACA.

Code § 9831(a)(2) and ERISA § 732(a), the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year

[TaxGuyBill]

Code § 9831(a)(2) and ERISA § 732(a), the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year

THANK YOU! I knew the ACA rules didn't apply for few than 2 participants, but I didn't realize that ERISA had the same exception.



In that case, if the spouse was not offered insurance, they can take the SEHI deduction.