Affordable Care Act: Have You Kept Up with the 2014/2015 Provisions?

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Compensation instead of Health Insurance

How do you handle additional compensation given to each employee to put towards their personal health insurance plan? The employer does not offer health insurance, but they are providing additional funds for the employee to put towards whatever plan they do have. If the shareholder's receive the same type of additional compensation, is it expensed and reported the same, or do I need to do something different because of their 2% shareholder status?

Michele more than 2 years ago

Comp instead of Health Insurance

Hey Michele...so, two different questions here. The answer to your first question is that any additional compensation paid to employees to purchase health insurance is just that, compensation. It would be included in their wages and reported as fully taxable on their W-2. The answer to the second question can be found in IRS Notice 2008-1, which says, in part...

"...if the shareholder purchased the health insurance in his own name and paid for it with his own funds the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums had to be paid by the S corporation and had to be included in the shareholder’s W-2."

Hope this helps.

Rob Shaff more than 2 years ago

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