Best Health Deduction for Solo Owner-Employee of a C Corporation
I have a friend who is the sole employee of his C corporation. Can he continue having his C corporation reimburse him for his health insurance payments? If I am interpreting what I’ve read and heard correctly… “if you have only one employee, then you are exempt from the Affordable Care Act (ACA) rules.”
My Question: Can the reimbursement appear in the C corporation’s tax return as a health insurance reimbursement, or is there something special I need to do to account for this?
First, “yes,” you understand this correctly. The C Corporation with one employee is exempt from the Affordable Care Act (ACA). And yes, the C Corporation can reimburse the owner-employee for his cost of health insurance.
But your friend might be able to do better, perhaps much better.
He or she can have their corporation install a Health Reimbursement Account. Such an account creates corporate tax deductions not only for health insurance but also for all medical costs not covered by insurance, such as co-pays, deductibles, dental, vision, etc.
Suppose your friend is married and/or has children under age 27 at the end of the taxable year. In that case, the corporation can cover your friend with a family plan, making all the family medical expenses tax deductible for the corporation.
The corporation deducts its health reimbursement account expenses on line 24 (employee beneﬁt programs) of the Corporation’s Form 1120.
For more insights and additional tax saving methods please see our “14 Tax Reduction Strategies for the Self-Employed” article.
This should come as a bit of good news since the IRS rule on Taxable Reimbursements of Employee Health Insurance has been somewhat cumbersome.
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Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo
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