Health Insurance Premium Deduction

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  • nkustura
    Member
    • Feb 2010
    • 68

    #1

    Health Insurance Premium Deduction

    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
    Junior Member
    • Feb 2015
    • 1

    #2
    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.

    Comment

    • nkustura
      Member
      • Feb 2010
      • 68

      #3
      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?

      Comment

      • TaxGuyBill
        Senior Member
        • Oct 2013
        • 2321

        #4
        Originally posted by nkustura
        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.

        Comment

        • Burke
          Senior Member
          • Jan 2008
          • 7068

          #5
          Originally posted by nkustura
          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.

          Comment

          • TaxGuyBill
            Senior Member
            • Oct 2013
            • 2321

            #6
            Originally posted by Burke
            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?

            Comment

            • Burke
              Senior Member
              • Jan 2008
              • 7068

              #7
              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.

              Comment

              • TaxGuyBill
                Senior Member
                • Oct 2013
                • 2321

                #8
                Originally posted by 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.
                Which thread? Is it this one? I don't see an answer from me on post #23.

                Primary Forum for posting questions regarding tax issues. Message Board participants can then respond to your questions. You can also respond to questions posted by others. Please use the Contact Us link above for customer support questions.



                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.

                Comment

                • geekgirldany
                  Senior Member
                  • Jul 2005
                  • 2359

                  #9
                  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.

                  Comment

                  • Lion
                    Senior Member
                    • Jun 2005
                    • 4698

                    #10
                    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.

                    Comment

                    • CVTax
                      Junior Member
                      • Feb 2015
                      • 22

                      #11
                      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.

                      Comment

                      • TaxGuyBill
                        Senior Member
                        • Oct 2013
                        • 2321

                        #12
                        Originally posted by 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.

                        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.

                        Comment

                        • kamckinley
                          Senior Member
                          • Apr 2008
                          • 178

                          #13
                          Originally posted by nkustura
                          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
                          Last edited by kamckinley; 02-10-2015, 03:12 PM.

                          Comment

                          • CVTax
                            Junior Member
                            • Feb 2015
                            • 22

                            #14
                            Originally posted by TaxGuyBill
                            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

                            Comment

                            • TaxGuyBill
                              Senior Member
                              • Oct 2013
                              • 2321

                              #15
                              Originally posted by CVTax
                              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.

                              Comment

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