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Corporate Income Tax Return Form 1120

Small Employer Health Insurance Business Tax Deduction
for employees, families and owners  under
IRC Section §106

Partnerships   ** Self Employed  **  S Corp  **  Schedule 1

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Employer Health Coverage Tax Deduction Section 106

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 Partnerships 

You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business.

  1. Insurance that covers fire, storm, theft, accident, or similar losses.
  2. Credit insurance that covers losses from business bad debts.
  3. Group hospitalization and medical insurance for employees, including long-term care insurance.
    1. If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners.  Publication 535  *  

     

The insurance plan must be established under your business.

For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual.

For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or the partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065)

IRS K 1
Instructions
 
1065 Partnership Return
 
as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan won’t be considered to be established under your business.

See self employed rules.  Ask us for a copy of Q & A # 8747 on Health Insurance for Partners & Sole Proprietors

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Section 106 for #SCorp Owners?

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder–employee’s Form W-2, subject to income tax withholding.

However, these additional wages are not subject to:

if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents).

A 2-percent shareholder-employee is eligible for an above-the-line deduction See Schedule 1 and is able to lower his  Adjusted Gross Income (AGI)

for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements.  If, however, the shareholder or the shareholder’s spouse was eligible to participate in any subsidized health care plan, then the shareholder is not entitled to the above-the-line deduction.  IRC § 162(l). Self Employed  26 USC 162 (I) (2) (b)

If an S corporation pays accident and health insurance premiums for its more­ than­ 2% shareholder­ employ­ees, it generally can deduct them, but must also include them in the share­holder’s wages subject to federal in­come tax withholding.    Learn more in Publication 15­B Employer’s Guide to Fringe Benefits.
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The insurance plan must be established, or considered to be established, under the  business.  IRS  Publication 535 pdf page 18   * If only one employee it can be in employees name  IRS.gov *  This includes  Individual Medicare Plans Journal of Accountancy   Check with your CPA.
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For more­ than­ 2% shareholders, a policy can be either in the name of the S corpora­tion or in the name of the shareholder.  You can either pay the premiums yourself or the S corporation can pay them and report the premium amounts on Form W­2 as wa­ges to be included in your gross income.  However, if the policy is in your name and you pay the premiums yourself, the S cor­poration must reimburse you and report the premium amounts on Form W­2 in box 1 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be estab­lished under your business  Learn More IRS Publication 535
.
 
Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, Publication 15b
 
 
 
Employees premium would still be deductible as a business expense under Section 106.
 
employee benefit programs deductible
Tax Return for S Corp # 1120 S – Health Insurance Deduction
 
 
 
 

This includes the:

  1. the owner – taxpayer,
  2. the owner’s – taxpayer’s spouse,
  3. the owner’s – taxpayer’s dependents, and‘
  4. any child (152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27. (HR 4872 – Obama Care  §162(l)(1)§401(c)(1))
Links & Resources

1040 Tax Return – Schedule 1 Line 29 – 16
#SelfEmployedDeduction Health Insurance Tax 

Schedule 1 additional income & adjustment

Self-employed health insurance deduction.

You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family.

How to figure the deduction.  Generally, you can use the worksheet in the Instructions for Forms 1040 and 1040-SR to figure your deduction. However, if  any of the following apply, you must use the worksheet in chapter 6 of Publication #535.

• You have more than one source of income subject to SE tax.
• You file Form 2555 (relating to foreign earned income).
• You are using amounts paid for qualified long-term care insurance to figure the deduction.

Use Publication #974 Premium Tax Credit instead of the worksheet in the Instructions for Forms 1040 and 1040-SR if the insurance plan established, or considered to be established, under your business was obtained through Covered CA - no extra charge to use an agent  and you are claiming the premium tax credit. Publication 334 *

 

Instructions  & Form 1040

Line 16

Schedule 1, * Line 29 Instructions

Set a Zoom or Phone Meeting

#Adjustments to Income - Schedule 1

#Schedule1 1040

schedule 1 adjustments to income

Ask us a Question? FAQ's?

Can you pay an employee NOT to take the group health plan?
Opt out or waiver payment

 

  • You must do a Section 125 Cafeteria Plan
    • irs.gov/faqs-for-government-entities-regarding-cafeteria-plans  
    • law.cornell.edu/125  
    • Our webpage on POP Premium only Section 125 Plans 

    • Reimbursing individual insurance coverage in the ACA era

      • Prior to the ACA, another popular benefit was simply reimbursing employees for individual insurance coverage that they purchased on their own. In most cases, these types of reimbursements could be made on a non-taxable basis. However, as part of the implementation of the ACA, these types of so called “employer payment plans” became largely prohibited, regardless of whether the reimbursements are taxable or non-taxable.

        For the time being, the only ways for an employer to “pay for” individual insurance coverage obtained by an employee is to establish a “Qualified Small Employer Health Reimbursement Arrangement” (QSEHRA) or provide additional taxable compensation, whether though a simple salary increase or a monthly “bonus” or “stipend.” Regarding the additional compensation approach, the key is that the payment not be a “reimbursement”—i.e., not conditioned on proof that the employee indeed obtained his or her own individual insurance coverage. Rather, the increased compensation (regardless of the form) must be unconditional and taxable.   Learn More  Just Work.com * 

    • Leavett.com 
    • Biz Journals.com 
    • NAHU Article  
    • Gallagher  

 

 

 

 

Employer's Guide to Fringe Benefits #Pub15B   pdf  HTML

employer guide fringe benefits

Employer's Supplemental Tax Guide

irs.gov/pdf/p15a

(Circular E), Employer's Tax Guide

irs.gov/p15.pdf

 

 

IRS #Pub334
Tax Guide for Small Business
Schedule C

IRS Tax Guide Small Business # 334

 

Our webpages on

Steve Shorr
Website Video #Introduction

Steve Video's

Corona Virus Covid

Health Coverage #Guide .org

Small Biz Majority Health Coverage Guide.org

Art Gallagher

Health Care Reform FAQ's
Understanding Health Reform

Health Care Reform FAQ's

Compliance #Assistance Guide from DOL.Gov Health Benefits under Federal Law

 

IRS Publication 502 pdf * html

Medical & Dental #Expenses

publication 502 medical & dental expense

United Health Care  -   Get a quote 

uhc

 

References and Technical Links

IRS More Info on Health Care Arrangements to not have a group plan but pay for employee individual plans. IRS Notice 2013-54
IRS Publication — Business Expenses #535
Tax Guide to Fringe Benefits — Publication 15-B

Internal Revenue Code Title 26 USC

⋄Cornell’s Site ⋄

GPO’s Site

⋄Formilab’s Site

Rev. Rul. 82-196
Rev. Rul. 67-360
IRS Withholding Calculator
CA Franchise Tax Board
US Tax Court.gov Opinions Search
Tax Facts: Employer Deduction — Password-Protected Tax Facts on Insurance — Employee Benefits goes into very detailed explanations. It can be purchased for $99 or check their website for a trial subscription.
 IRS Publication 502(all Medical Expenses)  Insurance Premiums

irs.gov/1040
Paying into Social Security # 10022
IRS 8885 Health Coverage Tax Credit   A partner with net earnings from self-employment reported on line 15a of Schedule K–1 (Form 1065).
IRC Section 162 (l)
A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W–2.
IRS Publication #535 Business Expenses
Schedule C Profit or Loss from Business 1040
Instructions Schedule C
Types of Business Organization

Learn more — No more salary discrimination §2716,

 

 

 

Email us for Tax Facts Self Employment Deduction Password Protected

Calculate your  Covered CA MAGI Income

take #Line8b 11 Adjusted Gross income then add line 2a, 6a &   8 (Foreign Income)

 

MAGI Income from 1040

Child, Related Pages & Site Map 

Other pages in Small Biz Tax Credits §45 R section

Home Office Deduction

Details on Obamacare Subsidy and Line 29 deduction

Self Employed – New Definition under Health  Care Reform – Introduction

See also rules on Management Carve Outs, what you offer to yourself, must be offered to employees, along with Insurance Company participation rules.

Discrimination – Management Carve Outs  Offering Employees same terms and benefits?

Covered CA Reporting

How much deduction for subsidy vs tax credit vs entire premium?

[child-pages]
[sibling-pages]

14 comments on “IRC §106 Health Insurance Deduction for Employers & Employees”

  2. When a corporation pays long term care insurance premiums on behalf of a more than 2% shareholder of an S Corp, and includes that amount as Federal wages on the W-2 Form, should those premium amounts also be reported as State wages on the W-2 Form of an Illinois employee?

    Reply

    We only practice in CA. Sorry, the links broke for Illinois

    See also our pages on Long Term Care benefits not being taxable as income

    Tax Qualified Long Term Care Policies

    Long Term Care for Employer Groups

    See also

    aaltci.org/long-term-care-insurance

    ltc insurance for owners and executives

    Our webpage on w 4 Withholding

    Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:

    Income, social security, or Medicare tax was withheld.

    Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate. irs.gov/about-form-w-2

    Reply

  3. If I take a client, prospect, my web designer or another member of my profession to pick their brain to lunch, how much is tax deductible?

    Reply

    • INTERIM GUIDANCE FOR BUSINESS MEALS
      taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:
      1. The expense is an ordinary and necessary expense under § 162(a) paid or incurred during the taxable year in carrying on any trade or business;
      2. The expense is not lavish or extravagant under the circumstances;
      3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
      4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
      5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages. irs.gov

      See also publication 463

      Reply

  5. Can a company offer HIGHLY compensated employees 70% paid health insurance and 50% Aflac insurance and then offer only $450 to the other employees and 0% towards Aflac? I always thought that you had to treat people the same regardless of what the person makes with the exception of Part Time employees. Please help me to clarify this.

    Reply

    • Please use the menu above and review the pages on management carve outs, Section 2716 salary discrimination and if you are in CA the get a quote or send your census feature. If you still have questions – please post there.

      Reply

  6. I elected to put $2400/yr into a dependent care FSA. At the end of June, I had a qualified life event (my husband got a new job and it paid much less than his old job) and my company’s HR dept allowed me to make changes to my benefit elections mid-year. With my husband’s income reduced, we would no longer be able to afford expensive daycare after school, but would need to move to a cheaper option (ASP program at the school instead of private day care), so I stopped contributions to the dependent care FSA. Unfortunately, I already signed the kids up for summer camps in April and May so there was no getting out of that expense. I had $1,200 in my dependent care FSA at the time of this change (1/2 the yr). When I submitted my claims for the summer day camps, they were denied because the camps didn’t take place until July/Aug and I no longer had dependent care FSA coverage. Since I contributed that money, and I’m still with my employer, don’t I have the whole year to use the funds I contributed at the beginning of the year before the qualified life change?

    Reply

  7. I am employer that funds a HDHP and HSA’s for all employees.
    Have employee with an adult child who can no longer be considered a dependent. Adult child needs to open her own HSA but is still covered on HDHP for two more years.
    Can employer contribute to adult child’s HSA? If so, are there any tax advantages?
    Thank you.

    Reply

  8. 1) I have an employee who has medical coverage through his wife’s employer and her coverage is a group plan not an individual plan.
    2) The employer requires her to pay for the premium difference between an individual policy and the couples plan they are on.
    3) When I hired him, he asked if I would cover / reimburse the premium amount that gets taken out of his wife’s paycheck.
    4) If I elect to pay / reimburse him the amount of premium her employer deducts, is that considered taxable income to him (my employee)?
    5) Should I add that amount to his salary through payroll or can I write him a separate non-taxable check directly out of my checking account?

    Note – numbering was done by the webmaster for more clarity when responding.

    Reply

    • 1) That’s great as individual plans can’t be used under ObamaCare by Employer Group’s. HNI

      Since your employee is covered by a spousal group plan, that is a permitted waiver and won’t count as a negative in the minimum participation percentage required by your Insurance Company.

      2) So, you mean that he’s charging full price for dependents and by individual you mean the employee only rate.

      3) The wife might check into a Section 125 POP Premium Only Plan or Section 125 Cafeteria Plan (we will be updating that page), so that the portion she pays from her paycheck is tax deductible.

      4) Here’s a citation Private Letter Ruling 9406002 IRC Section 61 that clearly says you cannot do this, without it being taxable, unless you have a Section 125 Cafeteria plan.

      word and brown.com/Offering-Cash-in-Lieu-of-Benefits

      5) It would be taxable as salary, unless you have a Section 125 cafeteria plan.

      3,4 & 5) Does your firm have a group plan that he is eligible for?

      How many employees do you have?

      Are you willing to make this plan available to all employees who can be a dependent on a spousal plan or other MEC Minimum Essential Coverage plan, other than Individual Plans? That is, not discriminate because of salary Section 2716?

      Note that you can’t offer incentives to encourage someone to drop the group plan and take Medicare ADA Cormarkins

      We do not give tax or legal advise.

      Just use and interpret the citations on your own or check with competent professionals.

      Reply

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