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cimino5
New Member

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

I have a small business with 3 employees including myself.  I pay one employees health insurance premium directly to the insurance company.  This is a policy that she had before she worked for me and I agreed to pay when she came aboard.  Do I have to put the premiums on her W-2?  Do I have to file a 1095 (A, B, or C?)


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Accepted Solutions
TaxGuyBill
Level 9

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

You are navigating a minefield here, and because of the continually changing laws for this type of thing, you should probably tie this in with a third-party organization that specializes in healthcare plans for small businesses.

  • If it is equally offered to all employees, this Employer Payment Plan (EPP) or Health Reimbursement Arrangement (HRA) is tax free to the non-shareholder employees.
  • If it is discriminatory offered to selected employees, it is added to taxable wages.
  • If the corporation pays for more than one employee (including yourself) it gets much more tricky.
    • Your reimbursement is added to box 1 of your W-2.  Nothing is added to the W-2 for other employees.
    • The maximum reimbursement under this "Qualified Small Employer Health Reimbursement Arrangement" for your employee would be $4950 ($10,000 for family plan) per year.  It should also be documented this arrangement only pays for insurance premiums.  This is a brand-new law that just passed three weeks ago (the prior law would have subjected the corporation to gigantic penalties), so there will be more Regulations, rules, guidance, etc. on this coming in the future months and years.  This is where it would be a particularly good idea to be associated with a health organization that specializes in this type of thing.

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6 Replies
TaxGuyBill
Level 9

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

Is this a corporation?  Or are you self employed with a business on Schedule C?
Is the employee an "officer" of the business?
Is the employee a shareholder of the business (or related to a shareholder)?  If so, what percentage does she (or the relative) own?
Is she the highest paid employee?
Opus 17
Level 15

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

The premiums can sometimes be a tax-free benefit, but you will run into problems with both the affordable care act and the IRS if you don't treat employees equally.  Hence the detail questions above.
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

And the fine for non-compliance with the ACA is $100 PER DAY PER EMPLOYEE counting from the date you discover the error.
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
cimino5
New Member

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

This is an S-Corp.  Employee is not an officer or shareholder or related.  We only have two employees besides me.  The other employee has insurance through his wife.  We have offered the same to the other employee.
TaxGuyBill
Level 9

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

You are navigating a minefield here, and because of the continually changing laws for this type of thing, you should probably tie this in with a third-party organization that specializes in healthcare plans for small businesses.

  • If it is equally offered to all employees, this Employer Payment Plan (EPP) or Health Reimbursement Arrangement (HRA) is tax free to the non-shareholder employees.
  • If it is discriminatory offered to selected employees, it is added to taxable wages.
  • If the corporation pays for more than one employee (including yourself) it gets much more tricky.
    • Your reimbursement is added to box 1 of your W-2.  Nothing is added to the W-2 for other employees.
    • The maximum reimbursement under this "Qualified Small Employer Health Reimbursement Arrangement" for your employee would be $4950 ($10,000 for family plan) per year.  It should also be documented this arrangement only pays for insurance premiums.  This is a brand-new law that just passed three weeks ago (the prior law would have subjected the corporation to gigantic penalties), so there will be more Regulations, rules, guidance, etc. on this coming in the future months and years.  This is where it would be a particularly good idea to be associated with a health organization that specializes in this type of thing.
dogongulf
Level 3

I have a small business with 3 employees including myself. I pay one employees health insurance premium directly to the insurance company.

You mention you have offered this same benefit to other employees. I highly recommend you having written documentation, such as a dated memo to all employees, of that offer.
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