C Corporation Shareholder Health Insurance
Knowing about c corporation shareholder health insurance is an important part of running a successful corporation.3 min read
Updated November 9, 2020:
Knowing about c corporation shareholder health insurance is an important part of running a successful corporation. Since a corporation is not considered a pass-through entity, the owners are completely separate from the company in terms of taxes. This not does mean that a c corporation can claim tax exemption, but instead means that the earnings of the company will be taxed on the corporate level and then again at the shareholder level for the earned dividends.
Even though this means that corporation is subject to double taxation, there are several tax benefits that a c corporation can enjoy which offset the fact that they are taxed twice. The new tax reform laws go even a step further to reduce some of the tax burdens that a corporation may experience.
The new tax bill has reduced corporate tax rates to 21 percent from 35 which is actually lower than the rate you will have for pass-through income. Most tax brackets also decreased again creating a tax reduction on the amount shareholders must pay on their earned dividends.
Health Reimbursement Arrangements For C Corporation Owners
Health reimbursement arrangements (HRAs) are employer-funded plans that provide reimbursement for tax-free medical expenses that owners pay including such costs as:
- Qualified health insurance premiums.
Certain types of business owners will enjoy limited tax benefits when it comes to HRAs, but not c corporations. C corporation owners can enjoy all of the tax benefits that their W-2 employees enjoy. Many c corporation owners take advantage of an HRA to use to reimburse themselves for their and their family members' medical costs tax-free. These reimbursements are tax-deductible for the business as well as allowing the owners, employees, and the business the ability to take advantage of these tax breaks.
When it comes to HRA reimbursement, the amount can vary between owners and employees. For example, you could have an HRA allowance for employees of $500 and Owners could receive up to $1,500. This can be beneficial to many corporate owners because a lot of owners cannot qualify for group health insurance policies or may have problems affording it.
The Taxing of Health Insurance Benefits for a Company Owner's Family
Sometimes it can be confusing about how to deduct family health insurance premiums. In a c corporation, no matter the size, the premiums of each employee will be deductible to the corporation.
Schedule C Filers
For those who file a Schedule C such as with an s corporation, you will need to put the cost of your health insurance on line 29 of your personal 1040 tax return. These premiums do not have to be itemized on your Schedule A, and you can take it as a deduction in addition to the standardized deduction if you do not have any other expenses to itemize.
A c corporation can deduct the premiums that are paid by the owner, spouse, and children. In addition to this, they can also establish a Medical Dental and Drug Reimbursement Plan which allows them to pay the additional expense that their insurance plan doesn't cover. This plan cost is deductible to the corporations.
How the ACA Affects Coverage
How the Affordable Care Act can affect your business's cost of premiums will largely depend on what type of business entity you have. In a c corporation, the shareholders are treated the same way another employee is treated which means that they can take advantage of the company-sponsored health plan. This allows them to participate on a tax-preferred basis. Though there are no guidelines that will allow an employee to purchase tax-preferred coverage without a company-sponsored plan.
For more than 2 percent of owners in an s corporation, the owner and the immediate family will be treated as partners. If the company sponsors a health plan, the family members can take advantage though they will not get it on a tax-preferred basis. They will only be subject to income tax on the premiums and not Social Security or unemployment tax.
If you are a shareholder that receives reimbursement, it will be included on your W2 and subject to income tax but not Social Security or unemployment tax.
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