Key Takeaways:

  • C Corporations are separate tax entities, subject to corporate-level taxes and shareholder dividend taxes.
  • Health Reimbursement Arrangements (HRAs) allow C Corporation owners to reimburse medical costs tax-free.
  • The Affordable Care Act (ACA) affects health insurance options for C Corp shareholders by allowing tax-preferred participation in company-sponsored plans.
  • C Corporations can deduct health insurance premiums for shareholders and their families.
  • C Corp medical reimbursement plans can be more advantageous compared to S Corp arrangements.

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:

  • Co-payments.
  • Deductibles.
  • 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.

Types of HRAs Available to C Corporation Owners

Several types of HRAs can be leveraged by C Corporation owners, each with unique tax advantages:

  • Individual Coverage HRA (ICHRA): Provides employees, including owner-employees, with tax-free reimbursements for individual health insurance premiums.
  • Qualified Small Employer HRA (QSEHRA): For small C Corporations with fewer than 50 employees, QSEHRAs allow tax-free reimbursements for medical expenses without offering group health plans.

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.

Maximizing Tax Deductions on Health Benefits

C Corporations have flexibility in structuring health benefits to maximize tax deductions. Owners can claim deductions for:

  • Dependent Coverage: Tax-deductible health insurance premiums for spouses and dependents.
  • Uncovered Medical Expenses: Through Medical, Dental, and Drug Reimbursement Plans, C Corporations can deduct medical costs not covered by insurance​.

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.

C Corporations

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.

ACA Compliance for C Corporation Health Plans

Under the ACA, C Corporations offering health insurance must meet specific compliance standards if they have 50 or more full-time employees. Requirements include:

  • Minimum Essential Coverage (MEC): Ensuring health plans cover essential benefits.
  • Affordable Coverage Standards: Premiums must be within affordability limits, with tax incentives available to help offset premium costs​.

S Corporations

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.

FAQ Section

Frequently Asked Questions

  1. What is a C Corp medical reimbursement plan?
    • It’s a tax-advantaged plan allowing C Corp owners and employees to get reimbursed for health-related expenses, often tax-free.
  2. Are health insurance premiums deductible for C Corp shareholders?
    • Yes, C Corps can deduct health insurance premiums for shareholders and their families.
  3. What types of HRAs can C Corporation owners use?
    • Options include Individual Coverage HRA (ICHRA) and Qualified Small Employer HRA (QSEHRA) for eligible corporations.
  4. How does the ACA affect C Corp health plans?
    • The ACA mandates coverage standards for C Corps with 50+ employees, impacting eligibility and premium cost compliance.
  5. Can C Corporation owners use HRAs for their family members?
    • Yes, they can include family medical expenses in HRA reimbursements if set up accordingly.

If you need help with c corporation shareholder health insurance, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.