Hi Robert,

Somewhat ironically, when I went to grab the text of the affordable care act pdf from the Democrat’s Senate.gov website, the website was down and would not provide the law. So I’m not going to answer your first question with a cite… but not covering employees the act doesn’t require an employer to cover shouldn’t be discrimination.

To answer the second question about whether or not an S corp needs a group plan to get the SEHI deduction, the answer is no… you don’t need that. You should be able to do the whole Box 14 deal… Note however that I’m not sure we’ve got good guidance from IRS about how to handle the self-employed health insurance amouunts inside Box 3 and Box 5 of the W-2.

So it sounds from reading all of your replies here regarding part-time employees, that they CAN be discrimated against regarding health insurance under the ACA stuff.

I have 2 brothers who are 50/50 owners of their S Corp. They have individual health insurance policies. The corporation pays the premiums, and we do the W-2 Box 1, SEHI Box 14 routine so they can deduct th premiums on the front of their Forms 1040.

They have part-time employees.

First question is, of course, can the part-time employees be discriminated against, and can you direct me where in the ACA it refers to this?

Second question is, if there were no non-shareholder employees, under ACA, or even before, are the brothers okay with the corporation paying their individual policies and doing the W-2 mechanism and getting the front page 1040 deduction?

Or in other words, if there is more than 1 shareholder/employee, is the corporation required under ACA, or before, to have a group plan in order to get the SEHI deduction?

Yeah, sorry, something in writing would be great. Unfortunately, for reasons I won’t speculate on here, the Internal Revenue Service has not provided the written mechanical guidance (in the form of Regulations and similar pronouncements) to people in a timely manner… which is what accountants and taxpayers need in order to effectively plan for the new law.

Thanks for your attention to so many unique circumstances. I share in James’ situation in that my husband and I are owners of an s-corp (making us essentially one owner) and we only have one other employee who works 20 hrs./week. Your answer is encouraging, but is there somewhere in writing that I can be absolutely sure that we will not be penalized for not covering her? She is covered by her parents’ insurance and does not want ours. We would like to do and HRA option, but we do not want to break any laws.

As frustrating an answer as this is, I don’t think anybody knows right now, how you correctly handle the self-employed health insurance deduction for a situation like yours.

I will make this prediction: I think you won’t get both the self-employed health insurance deduction and the subsidy… (BTW, I would happy to be proved wrong on this prediction.)

In this same situation, but now the husband and wife are losing their group coverage due to the ACA new definition of small groups so they will be purchasing individual insurance. Is this still okay to reimburse via the S-Corp and take the self-employed health insurance deduction?
What if they qualify for a subsidy?

Thanks!

Yes you can. But you need to do the accounting right. Say your husband earns $40,000 as a shareholder-employee in the S corp and that your family’s health insurance equals $10,000 a year.

What you need to do in this case is have S corp directly pay the health insurance… or reimburse the employee for the health insurance.

Then, you add the health insurance to the W-2 (but only in box 1)… so Box 1 of his W-2 shows $50,000.

At this point, your S corp has deducted the health insurance as wages… but shows the health insurance as income in box 1 on the W-2 (so it’s subject to income taxes). Note that Boxes 3 and 5 (which show the income subject to Social Security and Medicare) still show $40,000 in this example though. This is right because the health insurance isn’t subject to Social Security or Medicare taxes.

Then on your husband’s 1040, you take the $10,000 of health insurance that was included in your husband’s W-2 Box 1 income and treat it as a self-employed health insurance deduction. This is an adjustment for “adjusted gross income” so you don’t have to itemize or anything to get it.

You may be able to go back and fix incorrect accounting if your S corp did reimburse the health insurance premiums but you didn’t do the accounting right…

A friendly tip: You may want to figure out if this has been a recurring error in your tax return *why* the current preparation process didn’t do this correctly. You’ve very possibly left thousands of dollars of tax savings on the table.

You should be okay in this case. Not covering an employee the ACA doesn’t require the employer to cover is not discrimination.

I would think you’re on safer ground in this case… again though it’d sure be nice if small businesses had a full complement of regulations and rules from IRS to spell out how all this works.