Can my husbands S corp "pay" his health insurance premiums for tax break? He has 100 shares with only 1 employee/himself. I am listed only as an officer with 0 shares.

[mniccola]

IRS states a Scorp needs 2 or more employees to purchase insurance on the Healthcare Exchange. I did find this article on the IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

Towards the bottom of the page where it says in RED BOLD: "FEWER THAN TWO PARTICIPANTS WHO ARE CURRENT EMPLOYEES EXCEPTION" 

It looks like the company can pay for my husbands health insurance premium that's in his name and take it as a deduction?

Only 2 people are listed as officers in the company (my husband and myself), but my husband has 100% share ownership in the company. I have my own insurance (Medicare) because I am disabled.

Thank you for your help.

[TaxGuyBill]

Yes, that is allowed, and that is probably the main reason for having a S-corporation.

Because it seems like you and your husband are not too familiar with how to use the S-corporation, it would really be to your advantage to go to a tax professional to learn how it operates, and to prepare at least the first corporate return.

[mniccola]

Well, we have a tax guy but its been 2 weeks since they were not responding and now out of the blue they want to charge us a consultation fee all of a sudden for this answer... The IRS is "closed" right now but again I did find that IRS link about the exception rule...but was left unsure.
So in essence my husband can keep his insurance with the exchange as it currently is but instead of the monthly premium being deducted from his person checking account it can be deducted from his business checking and that will count as some sort of deduction/tax break for the business then?
(Btw, we are in the State of Illinois.)

Thanks so much for responding. I really appreciate this.

[TaxGuyBill]

Is he receiving any Advance credit ("subsidies") for the Marketplace insurance?

[mniccola]

Yes, he does receive a tax credit/subsidy  (small amount which may decrease/or drop off w/ new business income).
He opted to receive the subsidy/tax credit on a monthly basis so the monthly premium he is paying is a "discounted" price.

[TaxGuyBill]

Although some people disagree with me, I think the corporation should be reimbursing the FULL amount of insurance (before the Advance Credit).  So the best way to do that would be to submit monthly reimbursement requests (for the full amount) to the corporation, and then the corporation writes out a check to reimburse that.

When he receives his W-2 from the corporation, the reimbursed Medical Premiums will be added to box 1 of the W-2 (but not boxes 3 or 5, which saves Social Security and Medicare taxes).  That full amount of the W-2 is deductible by the corporation.

When he files his personal tax return, he would then usually qualify for the Self Employed Health Insurance deduction (which sort-of effectively removes that 'extra' amount in box 1 of the W-2) and thereby saves Income taxes.

It is well worth the money/consulting to have a GOOD tax professional to learn how to run the corporation.  Just be sure your tax professional knows corporations (many just to Individual returns).

[mniccola]

Interesting information...I will definitely bring this to the tax guy's office.



Thank you kindly again for your suggestions....

[TaxGuyBill]

Out of curiosity, why did you set up the business as an S-corporation?

I suspect that the corporation and its required payroll and paperwork is going to cost you more time and money than it saves.  Without knowing your entire situation, my first thought is that a Single Member LLC (which is treated as he is Self Employed/a Sole Proprietorship) could be a better fit.

You may want to ask the tax professional the amount of savings will be as a S-corporation (saves Social Security and Medicare on Medical Premiums and Distributions, which should be pretty low) versus the extra time/work/cost of filing quarterly payroll forms, filing and paying Federal Unemployment (usually $420, unless State Unemployment is also paid), any extra State requirements, and the separate corporate tax return.  Unfortunately, some unscrupulous tax professionals just automatically recommend a corporation without analyzing your specific circumstances.  They do that because they will get paid more to do the separate corporate return, and all of the payroll forms.

[mniccola]

Hi... it was to avoid being double taxed at a corporate level and then with distributions..to avoid 2 levels of taxation

[TaxGuyBill]

I guess my question was why not continue as Self Employed/Sole Proprietorship (you can set up an LLC for legal protection, and still be taxed as Self Employed/Sole Proprietorship)?

Being Self Employed/Sole Proprietor is simpler and MUCH less paperwork.  Yes, the distributions (which should me very minimal with that type of work) and medical insurance for a S-corporation saves some Social Security and Medicare taxes, but will that savings offset all of the other work and expenses involved with a corporation?

[mniccola]

I'll be honest I'm not sure, new territory for my husband and I...it was recommended  by the taxi medallion broker (not tax guy) to to set up the taxi medallion as an s-corp for both tax and liability reasons.
Apparently a lot of taxi medallion owners set up their new business as a S-corp I sopose for the tax and liability issues.
I get what your saying though about if it's worth the cost in the end it may not be worth it to have a S Corp. I will look into this more. I know when the business name was registered etc. it was filed as a C-corp by default then we were told to change it to an S Corp so that we would not be double taxed. I know my husband will be receiving weekly "rent" from the night shift driver... Maybe the s-corp protects the income generated from the weekly lease of the cab from the night shift driver to not be taxed.
As you can see, my husband and I are still ignorant about all of this. This is new territory for us and I'm trying to learn more as possible. I'm waiting now to here back from the Tax guy to find out when he is available. Mid-June the cab will be officially all set up and ready to go...so there is some time left to many any necessary changes I'm guessing?

[TaxGuyBill]

I did not realize there was another driver involved.  Yes, that could allow for more distributions (and therefore less salary), saving more Social Security and Medicare taxes, so a S-corporation MIGHT be a better option.  At any rate, a tax professional should analyze your specific circumstances to determine what type of entity and taxation is your best option.

In most States (maybe all), the liability protection of an LLC is comparable to a corporation.  If that is true in your State, then it comes down to what is best for your specific tax situation.