Section 106 - Health Ins for S-corp

[oceanlovin'ea]

In an earlier post regarding "s corp one shareholder health ins", Brad made the statement regarding setting up section 105(b) health reimbursement arrangement. Sandysea suggesting looking up Revenue ruling 61-146, which I did.

According to the ruling on Section 106, the reimbursement is not added to the W-2 wages.

My question now is about taking the deduction. If the s corp reimburses the employee/shareholder for medical costs, is this a deduction to the s corp or does it just become an adjustment to income under self-employed health insurance?

The reimbursement could include other medical costs besides health insurance so just taking the amount of the reimbursement couldn't go to the adjustments line.

Thanks

Linda F

[oceanlovin'ea]

Just moving this back up

Hopefully Brad will see it.

Linda F

[Brad Imsdahl]

Linda,

Rev. Rul. 61-146 is a ruling for employees in general. A Section 106 plan is where the employer provides the health insurance for an employee, and the value of the benefit is excluded from employee compensation. That rule does not affect S corp shareholders, because Rev. Rul. 91-26 says an S corp shareholder is not considered an employee for certain fringe benefit purposes. An S corp shareholder is treated as a partner in a partnership.

Therefore, Rev. Rul. 61-146 does not apply to S corp shareholders.

What we were talking about before had to do with the rule that for purposes of an S corp shareholder being able to take the self employed health insurance deduction on the front of the 1040, the insurance had to be in the name of the S corporation, not the individual shareholder. If the shareholder cannot get the insurance coverage in the name of the S corporation, then you should set up a Section 105(b) plan where the S corporation reimburses the shareholder for medical costs including insurance. The reimbursements still have to be added to the W-2 wage of the S corp shareholder, but now they qualify for the self employed health insurance deduction on the front of the 1040. If it is a Section 106 plan, the insurance coverage has to be in the name of the S corporation, which for a lot of our single shareholder clients, that just is not practical as the insurance company won’t issue the corporation a single person plan.