I’m hoping someone could point me in the right direction, I can’t seem to find anything about this, and I am looking to figure out how the ACA and subsidies interact with self-employment.
Basically, today I
Purchase individual health insurance, paid for by my company
Which, because I am a >2% S-corp shareholder, reports that as income on the W-2
Which allows me to deduct the individual insurance premium on my taxes as an above the line deduction for “Self-Employed Insurance Premiums”
But with the ACA in 2014, I don’t know if I need to change any of that to qualify for subsidies. (As it doesn’t cut out until over $100k for a family of my size, and I am 10’s of K clear of that). What I plan to do right now is:
Purchase health insurance on the exchange, ideally taking effect Jan 1, because only exchange insurance qualifies for the subsidy
But then the questions are:
Is the unsubsidized portion of the premium deductible on your taxes under “Self-Employed Insurance premiums” ?
Should I have the company buy the insurance and report the full premiums on the W-2 as I do today, or will that screw up the tax treatment and make me ineligible for the subsidies ? (I do this today because it avoid paying Social Security/Medicare on the health insurance premiums, but the subsidy is going to be bigger than that savings, if it matters).
To be honest, I’m looking for a straight answer on this. I’m a CPA and in a similar tax situation myself (let alone my clients) so you’d think I’d be the one to know. But I have yet to see a single source provide a definitive answer that I’d rely on.
Here’s what I can say: As owner, you can always change the coverage policy of your company to make yourself uncovered. You’d then pay your premiums out of personal funds. You still get the SEHI (Self-Employed Health Insurance) deduction as long as your Medicare wages are sufficiently high, even if you pay the premiums as a person and not as a company.
The only limitation with this answer is that SEHI is normally considered part of reasonable compensation. If you stop paying the premiums through the company, then you might have to increase the salary to meet reasonable compensation and doing that means paying more in FICA tax.
What I’d really like to see is an answer that a company-paid policy can still be purchased through an exchange for >2% owner of an S Corp just like it could be for a sole proprietor. This would make me a happy person, but I can’t say that with confidence yet.
(Oh, and don’t forget that your eligibility for a subsidy is based on AGI. There are lots of tricks, including retirement contributions, that a self-employed person can use to show a lower AGI.)
I agree with Dracoi. We are kind of in the same boat as the general public in that we are awaiting IRS guidance, temporary regs, or anything to help clear up issues such as these with the new health care law.
I would hope that by October 15th when the exchanges go live that the IRS will have issued some sort of help for this issue, but I would not be surprised if there is no guidance until near the end of the year or even after.
I was going to say that I’m glad to see other CPAs are coming to the same conclusions I am… and then I realized I’d much rather be wrong than uncertain.
Thanks ! It’s unfortunate that even CPA’s don’t have the guidance for that. I definitely hear you with the IRA’s and such - I have one for both my wife and myself. With the cliff like nature of the subsidy cut offs (if I am reading that right, see: http://www.ahipcoverage.com/2013/04/18/health-insurance-premium-subsidies-how-far-will-they-go/). I definitely will be doing my taxes as early as I can and dropping whatever $$ I need into that IRA if I am anywhere near one of those cliffs.