Best Health Deduction for Solo Owner-Employee of a C Corporation

Question

I’m a CPA in private practice, and I have a client who is the sole employee of his C corporation. Can he continue having his C corporation reimburse him for his health insurance payments? If I am interpreting it correctly, it states that “if you have only one employee, then you are exempt from the Affordable Care Act (ACA) rules.”

My question: can the reimbursement appear in the C corporation’s tax return as a health insurance reimbursement, or is there something special I need to do to account for this?

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Answer

First, “yes,” you are reading the article correctly. The C corporation with one employee is exempt from the ACA. And yes, the C corporation can reimburse the owner-employee for his cost of health insurance.

But your client can do better, perhaps much better.

He can have his corporation install a health reimbursement account. Such an account creates corporate tax deductions not only for health insurance but, in addition, for all medical costs not covered by insurance, such as copays, deductibles, dental, vision, etc.

Suppose your client is married and/or has children under age 27 at the end of the taxable year. In that case, the corporation can cover him with a family plan, making all the family medical expenses tax deductible for the corporation.

The corporation deducts its health reimbursement account expenses on line 24 (employee benefit programs) of the corporation’s Form 1120.

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