As a follow-up to my post of the other day when I talked about how to deduct shareholder health insurance on an S-Corporation, the ACA has complicated the waters somewhat.  I want to clarify what happens when a corporation reimburses an individual health insurance plan to a more than 2 percent shareholder.

If the corporation has a group health plan compliant with the ACA, everything is the same as it has always been.  Put the insurance on the W2 and deduct on the personal return as self-employed health insurance.  The problem comes in when the corporation reimburses the insurance.  If the shareholder is the only employee in the corporation, there is an exception for a single employee that does not require compliance with the ACA; do the above and everything is fine.

The problem comes in if there are more than the one employee.   If that employee gets their health insurance reimbursed, then the corporation is not in compliance with the ACA.  This is BAD – the corporation is subject to a maximum $100 a day penalty ($36,500 per year – AHHH!)

What if the other corporate employees don’t get their individual insurance reimbursed to them? Then the reimbursement to the shareholder MIGHT not be in compliance with the ACA.  I say might because the IRS has not given guidance on this yet, so we don’t know.  Better to err on the safe side and either just have one employee in the corporation or put in a corporate health plan.  Whatever you do don’t reimburse employees for their health insurance; give them a raise, treat it as payroll and they can get their own.

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