S-Corp and HI

[JG EA]

I have been reviewing our previous discussions on S-Corp HI and shareholders, other employees, fringe benefit, and discrimination.

So, with the new rules of HI can be in the name of the shareholder, I think for this one client nothing has changed. Check me out on this:

HI is in the name of the shareholder. He cannot reimburse the health insurance without offering some type of reimbursement plan to the other employees. HI is OK to discriminate but the S-Corp cannot pay the HI of the shareholder, because it is not in the "name" of the Corporation?

I'm going around in circles on this because the S-Corp could reimburse if only the shareholder was involved. And the S-Corp could pay for the health insurance in the name of the shareholder if only the shareholder was involved. Since there are employees, how does the S-Corp pay for Health Insurance for the shareholder without it being really a reimbursement because there is no company plan?

What do you think?

[veritas]

I do not know

where it says you can not discriminate for a health insurance plan.

[Bees Knees]

TTB page 13-27 indicates that a self-insured medical reimbursement plan is subject to the nondiscrimination rules. It is the employer provided health insurance plan that is not subject to the nondiscrimination rules.

If the S corporation is reimbursing the insurance paid by individual employees (including the S corporation shareholder’s insurance), that is a medical reimbursement plan in which you cannot discriminate.

If the S corporation purchases the insurance in its name and provides coverage to all employees, that is an employer provided health plan, in which it is OK to discriminate.

The new rules for S corporation shareholders that allow the S corporation to pay the insurance premiums for the shareholder has no affect on the nondiscrimination rules. They merely allow for the self employed health insurance deduction. You still have to decide whether it is a medical reimbursement plan, subject to nondiscrimination rules, or an employer provided health plan, not subject to nondiscrimination rules.

[JG EA]

TTB page 13-27 indicates that a self-insured medical reimbursement plan is subject to the nondiscrimination rules. It is the employer provided health insurance plan that is not subject to the nondiscrimination rules.

Yes I thought I was saying that but apparently not very clearly.

If the S corporation is reimbursing the insurance paid by individual employees (including the S corporation shareholder’s insurance), that is a medical reimbursement plan in which you cannot discriminate.

If the S corporation purchases the insurance in its name and provides coverage to all employees, that is an employer provided health plan, in which it is OK to discriminate.

That is my question in a nut shell. The employer can't pay for the shareholders and not the other employees? So, even with the new rules it doesn't help this type of S-Corp does it (if it only wants to pay for insurance for just the shareholder!

The new rules for S corporation shareholders that allow the S corporation to pay the insurance premiums for the shareholder has no affect on the nondiscrimination rules. They merely allow for the self employed health insurance deduction. You still have to decide whether it is a medical reimbursement plan, subject to nondiscrimination rules, or an employer provided health plan, not subject to nondiscrimination rules.

I made my question way too complicated but I think you answered for me with these two choices. But please excuse me for making you say "NO" but: Can my S-Corp client do any thing different than claim his health insurance as a medical deduction if he doesn't want to do anything at all for his employees?

[veritas]

Here is what

the TTB says:

Notice 2008-1. A more than 2% shareholder-employee qualifies for the self-employed
health insurance deduction if:
1) The S corporation makes the premium payments for the accident and health
insurance policy covering the 2% shareholder-employee (and his or her spouse or
dependents, if applicable) in the current taxable year; or
2) The 2% shareholder-employee makes the premium payments and furnishes proof of
premium payment to the S corporation and then the S corporation reimburses the
2% shareholder-employee for the premium payments in the current taxable year.

Example 4: Deb is a more than 2% shareholder-employee of an S corporation. Deb
obtains an accident and health insurance policy in her name. Deb makes the premium
payments to the insurance company and furnishes proof of the premium payments to the
S corporation for reimbursement. The S corporation reimburses her and reports the
amount of premium reimbursements as wages on her Form W-2. Deb includes that
amount in taxable wages on her Form 1040. Deb can take the self-employed health
insurance deduction for the amount of premiums that were included as wages on her
Form W-2.

[Bees Knees]

Can my S-Corp client do any thing different than claim his health insurance as a medical deduction if he doesn't want to do anything at all for his employees?

Example 4 that veritas cited is a medical reimbursement plan. You can't discriminate under such a plan.

In general, if an employer breaks the nondiscrimination rules for anything that would otherwise be a tax-free fringe benefit, then the benefit becomes fully taxable to key employees, such as employee/owners.

In this case, I can see where it is kind of a fuzzy area, since the shareholder is already required to include the benefit in taxable income on the W-2, but then gets the SE health insurance deduction on his personal 1040. Taking the SE health insurance deduction is something outside of the realm of the S corporation, so making it a taxable benefit due to breaking the discrimination rules could be a moot point, since it already is technically a taxable benefit as far as the S corporation is concerned.

I guess I don't know because that scenario was not addressed in the ruling. S corp shareholders breaking the discrimination rules could be a loophole.

[JG EA]

Thank you. Well, it seems to me that your 2 choices seem to say No.

"You still have to decide whether it is a medical reimbursement plan, subject to nondiscrimination rules, or an employer provided health plan, not subject to nondiscrimination rules."

Because #1 would involve the employees, and #2 would involve the employees.


Your thought "I guess I don't know because that scenario was not addressed in the ruling. S corp shareholders breaking the discrimination rules could be a loophole."

I'll think more about this one. And thanks again.

[veritas]

I guess Bees we will have to agree

to disagree.

I believe essentially the IRS is finally reconciled (somehwat) to what congress intended when they passed the health insurance deduction for self employed individuals.

They (IRS) hate the idea that some poor slob (of which I am one) who risks everything to run a small business might get the same tax treatment the president, congress and the entire federal bureacracy gets.

So for 2% or more shareholders, the only way to get an above the line deduction is to include in wages health insurance premiums paid or reimbursed by the corporation. There are no discrimination rules that I can see for a health insurance plan other than the ones the IRS tries to makes up on their own.

[Bees Knees]

There are no discrimination rules that I can see for a health insurance plan other than the ones the IRS tries to makes up on their own.

What is it you are disagreeing with? I didn't say there are discrimination rules for health insurance plans. I was talking about medical reimbursement plans, which DO have discrimination rules. [IRC Section 105(h)(2)]

If this new ruling is describing a medical reimbursement plan, then the discrimination rules DO apply. However, since the shareholder who discriminates is already having that reimbursement added to wages on the W-2, the issue seems to be meaningless, as the ruling seems to say he still gets the SE health insurance tax deduction.

[JG EA]

S-Corp HI again

Bees partial quote:

If this new ruling is describing a medical reimbursement plan, then the discrimination rules DO apply. However, since the shareholder who discriminates is already having that reimbursement added to wages on the W-2, the issue seems to be meaningless, as the ruling seems to say he still gets the SE health insurance tax deduction.

For a situation where the Shareholder in an S-Corp has employees, has a health insurance policy in shareholder's name, does not want to start any plans that include his employees, and wants to deduct the policy on page 1.

Does this "possible loophole" means that any reimbursement to the shareholder (being a discrimination) would not only be taxable to the shareholder as a fringe benefit, but be wages for FICA, FUTA, etc?

[veritas]

I apologise

normally your posts are clearer to me. I think they are confusing JG also.

JG, in my opinion if the corporation reimburses the shareholder for his health insurance it is a health insurance plan under IRC 106 and not a medical reimbursement under IRC 105.

So the amount goes on the W2 as taxable wages and is not subject to FICA or FUTA.

[Bees Knees]

Accorcing to IRC Section 3121(a)(2), it doesn't matter whether it is a medical reimbursment plan or a health insurance plan. Both are exempt from FICA and FUTA as long as the benefit is for some kind of health plan.

[JG EA]

Thanks again and it was my posts that were unclear. That's because I needed to figure it all out and as we went along things in general got clearer. Although I still don't know what to do but that's my problem.

[oceanlovin'ea]

Getting confused now

S corp shareholder/employee has health insurance in his name, not name of company. (This is big grip for me as it is impossible for most s corps to get health insurance in company name)
Check is written quarterly for insurance from s corp bank account. Would it be correct to consider those payments as personal draws from corporation? That is what we do when they pay for something personal with company funds...just consider it a draw.
If it were considered a draw, it is not a company expense. Therefore, why add it to employee's W-2?
Can he take adjustment to income for se health insurance on page 1 of 1040 under these circumstances?

Adding it to W-2 and deducting as adjustment is doing nothing for the shareholder/employee. They are not reducing their income at all. Why even do anything with the health insurance?
I hear one thing and then I hear the opposite. I would really like to have a definitive answer to this.

Linda F

[winnie]

reimbursed insurance payments

With the new rulings, the company can pay the health insurance directly, whether it is in the name of the company or the shareholder. The company can also reimburse the shareholder, if the shareholder pays the insurance directly, and that is also deductible as expense by the company. COMPANY MUST KEEP DOCUMENTATION IN FILES, if paying for insurance in shareholders name. To the company, the expense is shareholders wages (W2 Income), not health insurance expense or dividends/draw. If the company does that, then the insurance is deducted by the company as wages expense, added to the shareholder's W2 and deducted on the face of the shareholders 1040.