medical reimbursement plans

[oceanlovin'ea]

I know that a sole proprietor who has employees can have a medical reimbursement plan for them? This works very well when the sole prop employees a spouse.

But if this sole prop decides to be taxed as an S corp, can the S corp have a medical reimbursement plan for their employees? I have seen differing views and am trying to give this client a good idea of what to expect when he becomes an S corp.

Linda, EA

[ATSMAN]

From IRS.Gov:

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.

However, these additional wages are not subject to Social Security, or Medicare (FICA), or Unemployment (FUTA) taxes if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.

A 2-percent shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements. If, however, the shareholder or the shareholder’s spouse was eligible to participate in any subsidized health care plan, then the shareholder is not entitled to the above-the-line deduction. IRC § 162(l).

[oceanlovin'ea]

doctor bills

I was thinking more along the lines of reimbursement for medical expenses such as dentists, doctors, prescriptions, etc. I understand about health insurance. But thanks for the refresher. It always helps.

Linda EA

[ATSMAN]

I was thinking more along the lines of reimbursement for medical expenses such as dentists, doctors, prescriptions, etc. I understand about health insurance. But thanks for the refresher. It always helps.

Linda EA

I thought ACA did away with those plans and IRS was going to penalize employers who did not meet the ACA requirements. I am pretty sure there was a thread about that on this site??