Poll: How do you cover health care expenses in ER?

[ESRBob]

Perinova,
Am looking into it -- re-confirming with the CPAs now and will post what I learn, unless anyone here already knows for sure?

[AlmostDone]

Quote:

Originally Posted by ESRBob If you have any kind of profitable little sideline business, you can have that business buy your health insurance.

Do you still have to qualify for and purchase individual health insurance? Somehow I thought that being self-employed would give you access to group health insurance, but that doesn't sound like what is being said here.

[perinova]

Quote:

Originally Posted by ESRBob Perinova, Am looking into it -- re-confirming with the CPAs now and will post what I learn, unless anyone here already knows for sure?

Here are some info about on this subject.
http://www.coredocuments.com/irsheadliner163.php
http://www.irs.gov/businesses/small/...157049,00.html
Setting up a section 105 HRA doesn't seem very easy. So S-corp might not be the best choice on the health insurance front

[ESRBob]

Perinova,
Here is what my advisor just wrote back-- you were right, the S-Corp is treated more like a sole proprietorship for these purposes. I'll read through your links and see if it raises any more info.

"Sole proprietorships can deduct health insurance as an adjustment to income. They don't take it as a business expense however..... it does not reduce self-employment tax.

S-corp owners (greater than 2%) can do basically the same as sole proprietorships. It's not an expense of the corp. It's an adjustment to income. And .... I believe you can deduct it to the extent of profit plus owners' salaries. Actually, I'm sure owner salaries are included but not 100% sure you add in the profits.

C-corps can deduct health insurance as a an expense of the corp if they have a qualifying medical plan. They can deduct other medical expenses too .... if it's in the plan. The profits of the C-corp have nothing to do with the deduction. (My note: most self-employed would never be a C-corp)"

Almost Done -- yes, you should qualify for a special small group corporate plan, with the usual caveats for differences by state.

[tiredofwork]

Quote:

Originally Posted by ESRBob Perinova, S-corp owners (greater than 2%) can do basically the same as sole proprietorships. It's not an expense of the corp. It's an adjustment to income. And .... I believe you can deduct it to the extent of profit plus owners' salaries. Actually, I'm sure owner salaries are included but not 100% sure you add in the profits.

Health insurance premiums paid by the S-Corp are an expense of the S-Corp and reduce the income reported on the shareholders' K-1. However, 2% and greater shareholders who have health insurance premiums paid by the S-Corp have these premiums added to their W-2's as income. Then, on the 1040, most if not all, of the premiums come out of the 2% shareholder's income as an adjustment to income. The net effect is that the Schedule E income reported on the 1040 is reduced by the health insurance premiums. The addback to the W-2 of the shareholder is basically a "wash" on the wages after the adjustment to income.

Anyway, this is the way it works then the S-Corp makes a profit. Haven't had any experience with the loss side.

[Gotadimple]

If you have any kind of profitable little sideline business, you can have that business buy your health insurance. A couple caveats, if I'm remembering it all correctly (haven't dared to ask my accountant this stuff for the last few months, but they should be approachable by next week...):

In many states if you have a sideline business and can join a business association -- such as the local chamber of commerce or other industry association, you can purchase group insurance through the association. Most often, the rate may be the same or lower than individual insurance.

-- Rita

[ESRBob]

Just read the links: The Core Documents link looks a little suspect, based on their business model, but may be valuable. I think their main benefit over having the S-corp just buy a normal small group policy is what TiredofWork was just saying -- since the value of the premium is counted as w-2 (employment income), then maybe that means it is subject to self-employment tax (medicare and futa), too. A 15%+ tax on the value of the premium. Their package would perhaps help you get around that.


So what I get from the IRS Headliner is that there is a new (may 06) decision that penalizes you if, as an S-corp owner, you buy the insurance as an individual and try to get the S-corp to pay for it. You need a corporate group plan.

In contrast, a sole proprietor may buy insurance as an individual and still deduct it 'above the line'. Whether you'd want to buy as an individual or as the business would probably depend on state law, availability, premiums, and the like. Lots of states require two-person minimum size for groups. Couples get around this by forming a partnership instead of a sole proprietorship, and don't need to pay themselves wages. Still, with some hunting, one-person group plans are available in the states I've looked at.

Editing 4/24 #2<More discussions with accountant -- To summarize, there are 3 places where S-corp healthinsurance premiums touch the 1040 -- 1) as w2 income (Plus#1), 2) as a reduction in the S-Corp's income which flows into you through a K1 (minus #1) and 3) a deduction of the health care expenses you paid, offsetting the w2 income, on Line 29 (minus #2). Net effect is 1 deduction, but this would according to the accountant require you to do payroll if you aren't already, which could ba a pain or expense, and would (he says, I can't trace it through in my head) require paying self employment tax on the value of the premiums, which would also limit the attractiveness of this deduction.

In any case, the S-Corp must be the one sponsoring the group policy, otherwise you get into trouble as outlined above, and the premiums can only be deducted on your Schedule A with the hurdle > end edit

[tiredofwork]

Quote:

Originally Posted by ESRBob (with a 15% self employment tax on one of the plusses?) I think this might explain why I've been 'fused!

The information from the K-1 flows to Schedule E (not Schedule C). Currently, there is no self employment tax for S-Corp income (I have read that the IRS wants to change this).

[ESRBob]

Yeah, my accountant was just saying IRS has issued guidelines that SCorp owners must take 50% or 0% or profits as salary (w2 income, subject to self-employment tax), while the rest can flow in via the K-1 as profits taxed at your personal rate, but not subject to SS and Medicare/Futa.

I think this has always been what people were supposed to do, but now they are giving explicit guidelines since everyone wants to get the income without paying self employment tax.

If you only have 5 or 10k of income, though, it appears that is under the radar and you would not need to take that small amount as w-2 income.