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Old 08-03-2012, 01:16 PM
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C corp paying for health ins premiums

My husband owns a C-corp. He and I are officers, and are 2 of the 5 employees. His corporate bylaws state that the corporation will pay health ins premiums and all out of pocket medical costs for salaried employees, (he is the only one, the rest are hourly). Our new accountant told us he cannot do this anymore unless he pays for this for all his employees. We are getting conflicting answers as to what is legal in this case. Can you help? He said the law changed a couple years ago.



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Old 08-03-2012, 09:42 PM
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“His corporate bylaws state that the corporation will pay health ins premiums and all out of pocket medical costs for salaried employees, (he is the only one, the rest are hourly). Our new accountant told us he cannot do this anymore unless he pays for this for all his employees. We are getting conflicting answers as to what is legal in this case. Can you help? He said the law changed a couple years ago.”------> Insurers either agree or are required by law to cover all qualified employees in a group, along with their dependents. Some states require employers that employ more than a set number of people to provide group coverage for their employees. Others make employee health coverage strictly voluntary. C Corp can deduct health insurance premiums for an individual health plan that the employee has procured on his or her own. In either case, employers must typically pay for at least half of the coverage, while the employee contributes the remainder. The employee does not pay taxes on money the employer spends on his behalf, but the employer can take a tax deduction on any premiums it pays to provide health coverage for its employees, to include owner-employees. If the employer sponsors a plan and pays the premiums, the employer can deduct the cost of premiums as an ordinary business expense.So, as long as a C corp pays the health insurance premiums for a majority stockholder , the premiums are deductible by the corp assuming you've got no reasonable compensation issue. (Works 5 hours a year, gets $2,000 in wages plus $20k in health insurance premiums, you might have an issue.) Generally speaking, a C-corp enjoys a full deduction for the cost of employees’ (including owner employees’) health insurance premiums and even long-term care premiums without regard to age-based limitations. Thus the corporation can deduct any medical expenses or health insurance it pays for the officer/employee as a health insurance deduction item."If the C Corp reimburses you, it would not constitute income to you as long as the option must be offered to all employees. For C-corp health insurance premiums paid for employees and families that qualify as nondiscriminatory are deductible for C-corp and excludable from gross income for shareholders. It also doesn't matter if premiums are paid directly from the business account or reimbursed to the employee.The premiums are not included in the stockholder's w-2 as payroll and /or fringe benefits. If properly documented, it does not constitute taxable income to you as it is a non taxable fringe benefit. However, this option must be offered to all employees. The whole point of a small C-corp is to get health insurance / medical reimbursement.



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Old 08-04-2012, 04:22 PM
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Thank you very much for the information, although I need you to clarify for our personal situation. The corporation is in Colorado and has been paying for 100% of our health insurance premiums and all out of pocket medical expenses as salaried employee shareholders. The corporation has not offered a health insurance plan to the other 3 employees who are hourly (bylaws state corp will pay premiums for salaried employees only). Can we continue operating this way legally, or do we have to offer the other employees the same deal?



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Old 08-04-2012, 04:59 PM
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“The corporation has not offered a health insurance plan to the other 3 employees who are hourly (bylaws state corp will pay premiums for salaried employees only). Can we continue operating this way legally, or do we have to offer the other employees the same deal?”----->I think so (bylaws state corp will pay premiums for salaried EEs only). I don’t think a company has to offer health insurance to all EEs; it can have eligibility limitations as setup by the business structure. For example some only offer insurance for full-time EEs and others have a longer waiting period for part-time EEs. However, you generally have to cover all EEs who are eligible. You can decide how many hours EEs must regularly work each week to be eligible subject to rules of the carrier. In general, insurance companies, in other words, may require that EEs work a minimum number of hours every week so that employers don't put sick people (relatives, for example) on the payroll solely for health coverage. I guess you can check with your state insurance department to see if that's the law in your state(for more accurate info in detail).



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