Drew Edmundson wrote:

- quote -

I agree that the IRS rule/comment-in-the-Pubs would
certainly cover that situation. And, I agree, all premiums
for S corp owner employees would have to be "after tax"
regardless of whether some form of salary reduction scheme
was offered to NON owner employees.

But I think the IRS rule goes farther than that, to simply
allow owner employees to pay the premium out of their own
pocket and thereby avoid the complexities S corp accounting,
W-2 adjustments, unequal salaries or distributions, etc. (My
annual "Christmas bonus" is the extra money I make doing
these year-end payroll adjustments for clients. <g> )

MTW

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

- can it mean that the S shareholder/employee has part of
their group premium withheld from their pay and they can
deduct that portion plus the employer paid portion (that was
added to their W-2)? I would think the employee portion of
the premium would have to be withheld after tax.

Drew Edmundson, CPA (NC)

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HW "Skip" Weldon <skip5700removethis[at]hotmail.com> wrote:
- quote -

I would say so. In many cases, retiree health insurance is
provided on a per person basis so it is easy to ascertain
the cost for the SE spouse. The real question would be for
any children still on the policy.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:

- quote -

It's one of life's great mysteries... <g
MTW

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

That is an unusual paragraph. So how do you establish a
plan "under your business" but the business doesn't pay the
insurance itself? A rhetorical question, no doubt.

Drew Edmundson, CPA (NC)

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Harlan Lunsford wrote:

- quote -

If you own more than 2% of the shares (I presume you do
<grin> ), then the attribution rules under the IRC will make
her a 2% owner. Shares of stock are attributed to both
spouses, even the share is clearly the property of only one.

--
Ed Zollars, CPA
Phoenix, Arizona

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"Harlan Lunsford" <lunstax[at]bellsouth.net> wrote:
- quote -

That was one of my concerns too. Is your S corporation
paying insurance or is that a reimbursement arrangement? A
2% shareholder is just like a partner, or self employed.
Self employeds should not deduct for reimbursement
arrangements.

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Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:

- quote -

Note the following (seemingly self-contradictory, if you
note the first sentence <g> ) quote from Pub 535, page 25:

"The insurance plan must be established under your business.
You may be allowed this deduction whether you paid the
premiums yourself or your partnership or S corporation paid
them and you included the premium amounts in your gross
income."

This certainly appears to allow that a partner or S-corp
owner may pay the premiums personally. In fact, in the
context of an S-corp, that might make a lot of sense if
there are multiple shareholders and they want to maintain
parity in terms of salaries and distributions.

MTW

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mithff33[at]aol.com (Herb Smith) wrote:

- quote -

I like and am comfortable this approach. Here's a wrinkle:

What if the SE person is the spouse of the retired employee
with retiree health insurance? (The spouse has family
coverage with SE person as her dependent.)

Is the applicable 1040 line 29 deduction half of the total,
the dependent cost, or what?

-HW "Skip" Weldon
Columbia, SC

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Vince DiChiacchio wrote:

- quote -

All this has got me thinking now.

I of course operate under a sub S corporation, no employees.
No problem about health insurance deductions since I'm
covered under wife's Blue Cross with civil service. Hence
no deduction anywhere, neither on page one of 1040 nor on
schedule a, since can't get over that 7 1/2% figure; not
that I would even WANT to of course.

Thinking ahead now, when she retires, we'll continue to have
the Blue Cross plan, since government will continue their
present subsidy. But of course she won't be under an
employer sponsored plan, since she will have no (current)
employer. Okay, against my better judgement, I hire her,
even have my board of directors elect her as secretary of
the corporation, and of course she will have some writeup
work to do to justify her salary. Oh yes, and I have to
make sure she's a 2% + owner. Now then, maybe her premiums
will qualify for page one? Hmmmmm.......

Cheer$,
Harlan Lunsford, EA n LA

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- quote -

All the former employer's subsidy does is reduce the cost,
not eliminate it. The only thing being deducted from AGI is
the actual out of pocket cost to the self employed person,
the same as if the policy has been bought through the
chamber of commerce.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:
- quote -

Off on a little tangent here ...

The NC Department of Insurance says an employer with more
than 1 employee cannot reimburse an employee for an
individual policy nor pay for an individual policy directly.
(As some of you may recall we discussed this a while back).

Lets assume the NC DOI is right and ERISA nor any other
federal law overrides this rule. (If one of my clients
would pay a lawyer for an opinion on this like I keep
recommending then maybe I would have an expert opinion but
....) So if an S Corp owner personally pays the premiums on
an individual policy which cannot and are not reimbursed by
the company then it looks like there is no SE health
deduction. This has been my position.

Any opinions? TIA

Drew Edmundson, CPA (NC)

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"Phoebe Roberts, EA" <Phoebe[at]cottagesoft.com> wrote:
- quote -

I disagree, as I see no "employer subsidized plan" involved
here. Both taxpayer and spouse are RETIRED and
self-employed. Barring a direct IRS ruling against the
practice, I would advise that the premiums ARE deductible as
SE medical insurance on Line 29. Subject to net profit of
the SE endeavor, of course.

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Drew Edmundson wrote:

- quote -

As they are both rulings and neither revoked, the key is to
look at how 75-241 reconciled itself with 61-146 (which it
does).

What 75-241 makes clear is that an employer can't simply pay
cash "in lieu" of medical coverage--the employer must
determine that the funds are actually used to purchase
medical insurance. That was not the case in that ruling,
where the employer simply gave the employees cash equal to
the "prevailing" health insurance benefit. The employees
could use that cash to buy insurance, or they could have no
insurance whatsoever.

--
Ed Zollars, CPA
Phoenix, Arizona

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Arthur L. Rubin wrote:

- quote -

My point exactly. And I would argue that in common usage
and generally under the IRC, when talking about an
"employer" we mean someone you currently have an employment
relationship with.

--
Ed Zollars, CPA
Phoenix, Arizona

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:
- quote -

<snip
- quote -

Thanks very much for your insights. I like the logic of
your explanation. It seems to me that if you are laying out
$1500 or so per year for health insurance (per person), you
have no other employment (line 7 is empty) and you are
filing a schedule C with $12,000 in net income, you should
be entitled to take SE health insurance. If you had no
subsidy from your previous employer and the cost of the
insurance was $300 a month, there would be no question.

Bottom line is that based on what you have said, it meets
the "realistic possibility standard".

ll freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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Phoebe Roberts, EA wrote:
- quote -

And again, No. Because they are NOT employed any longer,
this doesn't apply.

Cheer$,
Harlan Lunsford, EA n LA

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Frank S. Duke, Jr. <dukefs[at]one.net> wrote:

- quote -

It IS deductible, on Schedule A.

Meanwhile, your example has a serious problem, in my
opinion, with the "Canada Goose" test (that's a combination
of the "duck" test and the "smell" test). Without parsing
words ad nauseam, it certainly looks like your clients are
participating in a "...subsidized plan maintained by an
employer..."

MTW

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This area really needs some guidance.

As Ed Zollars mentioned, reimbursing an employee can be a
plan. Yet the self-employment rules specifically refer to
insurance and do not include other plans or reimbursement
arrangements. On the other hand, the purpose of the
self-employment insurance statute was to eliminate an
employee's advantage.

As Phoebe Roberts mentioned, an employer's subsidized health
plan stops the self-employed's insurance deduction. Yet Mr.
Duke's clients no longer have an employer.

Vince, CPA

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Phoebe Roberts, EA wrote:
- quote -

To throw oil on troubled waters (and light it)...

It's a FORMER EMPLOYER'S subsidized plan. The code doesn't
say "present or former", and there are no regulations.

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