Comments on: Taxes And Health Care http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/ Research and discussion of the Colorado health insurance industry and the healthcare crisis in America. Sat, 20 Mar 2010 01:19:45 +0000 http://wordpress.org/?v=abc hourly 1 By: Don Levit http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-12993 Don Levit Tue, 13 Jan 2009 20:36:23 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-12993 Mike: AS you know, the provisions for exclusion of income tax and FICA do not always coincide. In the Notice you cited, it speaks of the premium being included in wages for FICA taxes if the requirements of Section 3121 (a)(2)(B) are not satisfied. Can you explain why the requirements of that section are satisfied? Please see my prior post. Don Levit Mike:
AS you know, the provisions for exclusion of income tax and FICA do not always coincide.
In the Notice you cited, it speaks of the premium being included in wages for FICA taxes if the requirements of Section
3121 (a)(2)(B) are not satisfied.
Can you explain why the requirements of that section are satisfied?
Please see my prior post.
Don Levit

]]> By: Mike Taylor http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-12992 Mike Taylor Tue, 13 Jan 2009 19:37:39 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-12992 Don, that congressional research report doesn't fully touch on the issues that are covered in the 2008-01 revenue ruling. That example 4 definitely includes the social security and medicare tax exclusions because the income reported to the employee-shareholder on the W2 is reported only as gross income. Don, that congressional research report doesn’t fully touch on the issues that are covered in the 2008-01 revenue ruling. That example 4 definitely includes the social security and medicare tax exclusions because the income reported to the employee-shareholder on the W2 is reported only as gross income.

]]> By: Don Levit http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-12991 Don Levit Tue, 13 Jan 2009 17:33:53 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-12991 Louise: Yes, that example does seem to support your being able to exclude the premiums from income taxes. But, there may not be an exclusion for Social Security and Medicare taxes, as well as federal unemployment taxes. This may apply to your situation,depending on how you interpret my prior post. Here is an excerpt from the Congressional Research Service in a recent report, which can be found at: http://assets.opencrs.com/rpts/RL34767_20081121.pdf "Section 106(a) does not apply to self-employed individuals since they are not considered employees under the code. However, under current law they can obtain roughly the same INCOME TAX SAVINGS from the above-the-line deduction authorized under Section 162(l). Self-employed individuals are also considered as more than 2% shareholders of S corporations. This excerpt is found on page 4. Don Levit Louise:
Yes, that example does seem to support your being able to exclude the premiums from income taxes.
But, there may not be an exclusion for Social Security and Medicare taxes, as well as federal unemployment taxes.
This may apply to your situation,depending on how you interpret my prior post.
Here is an excerpt from the Congressional Research Service in a recent report, which can be found at:
http://assets.opencrs.com/rpts/RL34767_20081121.pdf
“Section 106(a) does not apply to self-employed individuals since they are not considered employees under the code. However, under current law they can obtain roughly the same INCOME TAX SAVINGS from the above-the-line deduction authorized under Section 162(l).
Self-employed individuals are also considered as more than 2% shareholders of S corporations.
This excerpt is found on page 4.
Don Levit

]]> By: Louise http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-12990 Louise Tue, 13 Jan 2009 06:12:49 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-12990 Don and Mike, Thanks for all your comments. I've been meaning to come back here with an update. I spoke with our accountant a few weeks ago, and did some research on my own, and came up with the same publication that Mike mentioned. Our situation is described in Example 4 (i) on page 4 of the 2008-1 document. I know there will be more than a few late nights for me over the next month or so as I work on our taxes. But at least I have the health insurance portion under control! Don and Mike,
Thanks for all your comments. I’ve been meaning to come back here with an update. I spoke with our accountant a few weeks ago, and did some research on my own, and came up with the same publication that Mike mentioned. Our situation is described in Example 4 (i) on page 4 of the 2008-1 document. I know there will be more than a few late nights for me over the next month or so as I work on our taxes. But at least I have the health insurance portion under control!

]]> By: Don Levit http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-12988 Don Levit Mon, 12 Jan 2009 20:57:17 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-12988 Mike: Thanks for providing Notice 2008-1. It definitely makes the situation a bit clearer. In regards to Louise's question, I wonder if the S corporation can selectively choose employees, as opposed to, say, offering to a class of employees that is not discriminatory. The Notice seems to say yes, in that the plan is established by the S corporation if the 2-percent shareholder makes the premium payments and furnishes proof of paymenty to the S corporation, and the corporation reimburses the shareholder for the premium in the taxable year. According to Example 4, it looks like Louise could do this just for her family, and no other employees. However, according to the Notice, the premium is included in wages for Social Security and Medicare taxes if the requirements for exclusion under section 3121(a)(2)(B)are not satisfied. This section states that for premiums to not be counted as wages for Social Security and Medicare purposes that the "plan or system is established by an employer for his employees generally or for a class or classes of his employees." So, it looks like the wages would be excluded for income tax purposes, but not for Social Security and Medicare taxes, in Louise's case. What do you think? Don Levit Mike:
Thanks for providing Notice 2008-1.
It definitely makes the situation a bit clearer.
In regards to Louise’s question, I wonder if the S corporation can selectively choose employees, as opposed to, say, offering to a class of employees that is not discriminatory.
The Notice seems to say yes, in that the plan is established by the S corporation if the 2-percent shareholder makes the premium payments and furnishes proof of paymenty to the S corporation, and the corporation reimburses the shareholder for the premium in the taxable year.
According to Example 4, it looks like Louise could do this just for her family, and no other employees.
However, according to the Notice, the premium is included in wages for Social Security and Medicare taxes if the requirements for exclusion under section 3121(a)(2)(B)are not satisfied.
This section states that for premiums to not be counted as wages for Social Security and Medicare purposes that the “plan or system is established by an employer for his employees generally or for a class or classes of his employees.”
So, it looks like the wages would be excluded for income tax purposes, but not for Social Security and Medicare taxes, in Louise’s case.
What do you think?
Don Levit

]]> By: Mike Taylor http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-12982 Mike Taylor Fri, 09 Jan 2009 06:10:22 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-12982 Don, I don't think you are properly understanding the benefit an S-Corporation owner can get with health insurance premiums. The way it works is like this: * The s-corp can deduct the health insurance premium paid to shareholders as a business expense. * This expense gets reported as income on the W2, but it is NOT subject to social security/medicare * THEN, the shareholder can deduct on his personal tax return the full premium amount as an above-the-line deduction So you see, you get essentially a pre-tax treatment of health insurance premiums this way. For more info, see IRS ruling 2008-01: http://www.irs.gov/pub/irs-drop/n-08-01.pdf Don, I don’t think you are properly understanding the benefit an S-Corporation owner can get with health insurance premiums. The way it works is like this:

* The s-corp can deduct the health insurance premium paid to shareholders as a business expense.
* This expense gets reported as income on the W2, but it is NOT subject to social security/medicare
* THEN, the shareholder can deduct on his personal tax return the full premium amount as an above-the-line deduction

So you see, you get essentially a pre-tax treatment of health insurance premiums this way. For more info, see IRS ruling 2008-01:
http://www.irs.gov/pub/irs-drop/n-08-01.pdf

]]> By: Mary Barlow http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-12756 Mary Barlow Thu, 13 Nov 2008 02:10:35 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-12756 We have a group of two in Fort Collins, a very good accountant, and found the higher premiums for group insurance to negate any tax benefits. Luckily, we are healthy. So individual health insurance worked well for our situation. I really, really appreciate all of the good health insurance information on this site. I have had a lot of questions on subjects that I could not find addressed anywhere else that were answered here. Mary We have a group of two in Fort Collins, a very good accountant, and found the higher premiums for group insurance to negate any tax benefits. Luckily, we are healthy. So individual health insurance worked well for our situation.

I really, really appreciate all of the good health insurance information on this site. I have had a lot of questions on subjects that I could not find addressed anywhere else that were answered here.

Mary

]]> By: Don Levit http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-11461 Don Levit Thu, 28 Aug 2008 17:51:55 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-11461 Louise: Thanks for your reply. In publication 535, it states, "If an S corporation pays accident and health premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages." So, it looks like what is provided at the corporate level is taken away at the personal level. In the portion that you cited it ends with "However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amoumts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business." So, it doesn't look like a net deduction for premiums is allowed. In addition, in this publication it states, "Do not subtract the health insurance deduction when figuring net earnings for your self-employment tax." So, the self-employment tax is not reduced, even if the deduction was allowed. Section 162(l) that I referred to earlier, apparently, allows health insurance deductions in qualified plans that allow health insurance. Don Levit Louise:
Thanks for your reply.
In publication 535, it states, “If an S corporation pays accident and health premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder’s wages.”
So, it looks like what is provided at the corporate level is taken away at the personal level.

In the portion that you cited it ends with “However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amoumts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.”
So, it doesn’t look like a net deduction for premiums is allowed.

In addition, in this publication it states, “Do not subtract the health insurance deduction when figuring net earnings for your self-employment tax.”
So, the self-employment tax is not reduced, even if the deduction was allowed.
Section 162(l) that I referred to earlier, apparently, allows health insurance deductions in qualified plans that allow health insurance.
Don Levit

]]> By: Louise http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-11457 Louise Thu, 28 Aug 2008 07:51:50 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-11457 Don, I'm wondering if this works for S-Corps. I'm finding that it would work for a sole proprietor, but perhaps not for a business with more than one employee. IRS Publication 535 (Business Expenses) says – “The insurance plan must be established under your business. Partners and more-than-2% S corporation shareholders can claim the self-employed health insurance deduction only if the policy is in the name of the partnership or S corporation. For sole proprietors, the policy does not have to be in the name of the business if it is in the name of the sole proprietor." So it's still sounding like a business with more than one employee has to have their health insurance set up under the business name (ie, a group policy) or perhaps set up an HRA in order to reimburse premiums for the employees/shareholders. Don,
I’m wondering if this works for S-Corps. I’m finding that it would work for a sole proprietor, but perhaps not for a business with more than one employee. IRS Publication 535 (Business Expenses) says – “The insurance plan must be established under your business. Partners and more-than-2% S corporation shareholders can claim the self-employed health insurance deduction only if the policy is in the name of the partnership or S corporation. For sole proprietors, the policy does not have to be in the name of the business if it is in the name of the sole proprietor.” So it’s still sounding like a business with more than one employee has to have their health insurance set up under the business name (ie, a group policy) or perhaps set up an HRA in order to reimburse premiums for the employees/shareholders.

]]> By: Louise Norris http://www.healthinsurancecolorado.net/blog1/2008/08/21/taxes-and-health-care/comment-page-1/#comment-11431 Louise Norris Mon, 25 Aug 2008 21:42:19 +0000 http://www.healthinsurancecolorado.net/blog1/?p=539#comment-11431 Don - Thanks! I'll look further into this, I appreciate your insight here. Don – Thanks! I’ll look further into this, I appreciate your insight here.

]]>