Trying to Understand Business Health Insurance vs Personal

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bobble
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Joined: Wed Aug 13, 2014 7:57 pm

Trying to Understand Business Health Insurance vs Personal

Post by bobble » Fri May 01, 2015 12:45 am

I'm trying to wrap my head around the pros\cons of getting my health insurance as an individual vs getting it through my own small business company (I own 50%). I'm specifically stuck on the taxation of fringe benefits for owners. I'm unclear if I lose a deduction or if it ends up as a wash?

Pros of Individual Insurance
- cheaper than group insurance (for me anyway)
- I can write off my premiums

Cons of Insurance through Company
- higher premiums (for me anyway)
- company can deduct premiums paid, but I as an individual will have to pay taxes on this amount as a fringe benefit
- all employees of the company must have equal health insurance once offered

Assuming the premiums are equal, is there a tax deduction that I get by paying for the health insurance as an individual that I lose by buying a group policy through my small business? Sorry been beating my head against this for a while. :confused

jared
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Re: Trying to Understand Business Health Insurance vs Person

Post by jared » Fri May 01, 2015 1:08 am

What type of entity? How many employees?

Topic Author
bobble
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Re: Trying to Understand Business Health Insurance vs Person

Post by bobble » Fri May 01, 2015 9:55 am

LLC taxed as an S-Corp. Everything is pass-through. My partner and I (we both own 50%) are the only two employees of the company at the moment. The minute we hire an employee we will have to start running benefits for the employee as well as ourselves through the company.

niceguy7376
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Location: Metro ATL

Re: Trying to Understand Business Health Insurance vs Person

Post by niceguy7376 » Fri May 01, 2015 10:19 am

bobble wrote: Pros of Individual Insurance
- I can write off my premiums
I can write off my premiums if i have individual insurance?

Topic Author
bobble
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Re: Trying to Understand Business Health Insurance vs Person

Post by bobble » Fri May 01, 2015 10:25 am

I believe so:
If you paid your health insurance premiums with your own after-tax money, they’re deductible.

For example, if you bought an individual or family health insurance policy on your state’s health insurance exchange or directly from an insurance company, the money you paid toward your monthly health insurance premiums can be taken as a tax deduction. You’ll list this deduction as a medical expense on Schedule A of Form 1040. However, the deduction may be limited. You'll learn more about this limitation below.

The Amount of Your Health Insurance Tax Deduction Is Limited

If you’re able to take a write-off for health insurance, there are limits to how much of your premiums you can write off.If you’re taking your health insurance as a medical-expense deduction on Schedule A, you can only deduct medical expenses that exceed 10% of your adjusted gross income. (Until 2017, this figure is only 7.5% for seniors age 65 and older.)Add up your health insurance premiums and all of your eligible unreimbursed medical expenses like your deductible, copays, and coinsurance. If all of those together are greater than 10% of your adjusted gross income, you can deduct the part that exceeds 10% of your income. Learn more about the medical-expense deduction, including what other expenses count toward it, in "How To Write Off Medical Expenses as a Tax Deduction." If you’re self-employed and claiming the self-employed health insurance deduction on Form 1040, you don’t have to exceed the 10% mark because you’re writing the premiums off as an adjustment to your income rather than as a deduction. In your case, the amount you can claim is limited by your profitability. You can’t claim an adjustment to your income for health insurance premiums that are larger than your income.
ref: http://healthinsurance.about.com/od/sav ... ctible.htm

Obviously if your employer is paying for your health insurance, your premiums are NOT deductible.

niceguy7376
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Re: Trying to Understand Business Health Insurance vs Person

Post by niceguy7376 » Fri May 01, 2015 10:46 am

Ok, so it is not a straight deduction but 10% AGI exceed limit.

You can only deduct medical expenses that exceed 10% of your adjusted gross income.
So if AGI is 80K and Health Ins premium for family was 1000 a month for 12k, I can only deduct 4K right?

OP, If that is the case, is it still worth the PRO of having individual insurance?

jared
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Re: Trying to Understand Business Health Insurance vs Person

Post by jared » Fri May 01, 2015 11:06 am

Please see my explanation in this discussion:

viewtopic.php?f=2&t=161910&p=2431762#p2431762

I don't see any reason to have group health insurance policy if individual premiums are cheaper.

NOVACPA
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Re: Trying to Understand Business Health Insurance vs Person

Post by NOVACPA » Fri May 01, 2015 11:46 am

niceguy7376 wrote:15 10:46 am
Ok, so it is not a straight deduction but 10% AGI exceed limit.

You can only deduct medical expenses that exceed 10% of your adjusted gross income.
So if AGI is 80K and Health Ins premium for family was 1000 a month for 12k, I can only deduct 4K right?
You would still need deductions on the schedule A that when combined with the 4,000 are greater than 6,200 (the standard deduction).

westbranch
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Re: Trying to Understand Business Health Insurance vs Person

Post by westbranch » Fri May 01, 2015 12:04 pm

As a S Corp >2% owner, your health insurance is included as wages (Box 1 of w2) and is deductible on your personal 1040 as SE health insurance. You do not pay FICA on the health insurance "wages".

http://www.irs.gov/Businesses/Small-Bus ... nce-Issues

AWH_CPA
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Re: Trying to Understand Business Health Insurance vs Person

Post by AWH_CPA » Fri May 01, 2015 12:11 pm

You will need to discuss with your own CPA, but I believe if you do not have employees, an individual health insurance plan can be a "company sponsored" plan for an S-Corp.

The S Corp will pay the premiums and deduct this expense as compensation to the owner. The owner reports this compensation as taxable wages from their W2. The owner then reports an adjustment to AGI for self employed health insurance.

The net result is that the amount of premium is fully deducted.

As an S-Corporation, you need to get away from the notion of "its deductible for business but not personal or its deductible for personal and not business etc etc". Any S-Corp profits flow through to your tax return and are included with all other sources of income to determine how much income tax you will pay. The way you want to treat health insurance premiums is how I laid it out above. Any other way and you are either 1) doing it wrong or 2) losing out on the deduction due to 10% AGI limitations on schedule A.

RabbMD
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Re: Trying to Understand Business Health Insurance vs Person

Post by RabbMD » Sat May 02, 2015 9:38 am

jared wrote:Please see my explanation in this discussion:

viewtopic.php?f=2&t=161910&p=2431762#p2431762

I don't see any reason to have group health insurance policy if individual premiums are cheaper.
Im not sure how you get to this conclusion Jared.

If you buy individual insurance, it is only deductible at the 10% agi rate below the line on schedule a generally. Yes, s-corps have some exceptions, but woth the irs regs for the aca these are still murky imho.

If you buy group you deduct the premiums above the line on your 1040 as an s corp owner to cancel out the increased w-2 "phantom" Income s corp owners receive.

So even if individual insurance is cheaper, it must be cheaper than the lost tax deduction amount of not being able to deduct the first 10% agi of your premiums. At say a combined 42% fed state rate on a $200,000 agi this tax drag is 42% of $20,000 or, $8,400 cheaper for the individual policy.

Thats not happening often. This is especially murky in my opinion if you have non owner employees for which you provide insurance.

jared
Posts: 554
Joined: Sun Jul 06, 2008 11:57 pm

Re: Trying to Understand Business Health Insurance vs Person

Post by jared » Sat May 02, 2015 1:55 pm

RabbMD wrote:
jared wrote:Please see my explanation in this discussion:

viewtopic.php?f=2&t=161910&p=2431762#p2431762

I don't see any reason to have group health insurance policy if individual premiums are cheaper.
Im not sure how you get to this conclusion Jared.
Did you read the linked discussion?

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