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Best Health Deduction for Solo Owner-Employee of a C Corporation

  • Daniel Morris
  • July 26, 2022
  • ACA, Affordable Care Act, C Corporation, Corporate Tax, Corporate Tax Deductions, Form 1120, Health Insurance, Health Reimbursement Account, Owner-Employee, Tax Deductions

Question

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?

Answer

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.

If you have questions and need clarity, or need help to determine what’s important to pay attention to retain or maximize your gains, please contact us at Morris + D’Angelo. This is our Expertise!

At Morris + D’Angelo, we believe that Tax Optimization is one of the most empowering and responsible things you can do to protect your growing financial assets. Tax optimization looks at a multi-year approach to minimizing tax costs. Tax avoidance is integral to tax optimization.


Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo


Daniel Morris
Daniel frequently provides Media Content via Workshops, Podcasts, and Printed Articles on topics like Bitcoin and Cryptocurrency, Wealth Preservation and Planning, Global Banking, and many other high-level financial topics that serve and demonstrate the Value of our Global Network that should be of interest to those who need Private High-Wealth Services.

If you would like Daniel to speak to you or your Professional Group and bring clarity about the new frontier of the new business tax law changes. Please contact us.

Morris+D’Angelo is the industry leader for many High-Wealth Customers and Organizations.

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Daniel Morris, Dan Morris, CPA, Portland Oregon, Dragon Slayer

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