IRS FINALLY ISSUES GUIDANCE FOR S CORP SHAREHOLDERS RELATING TO REIMBURSING HEALTH INSURANCE PREMIUMS
The IRS just issued needed guidance for relief from the excise taxes for S Corporation owners who receive reimbursement from their companies for health insurance premiums. Previously, S Corp owners who received reimbursement from the S Corp were allowed to deduct the health insurance premiums without penalty. The Affordable Care Act provisions and Department of Labor rulings implementing the Act prohibited companies from reimbursing individuals for health insurance premiums. Thanks to just-issued IRS Notice 2015-17, unless and until additional guidance is issued, most S Corp owners can continue to reimburse themselves for the health insurance premiums, include the amount in their Form W-2 wages, and deduct the premiums in arriving at Adjusted Gross Income on their individual tax return. Note that this applies only to the S Corp owners. The Affordable Care Act prohibits reimbursing other employees for health insurance premiums and subjects S Corps that reimburse employees to penalty excise taxes of up to $100 per day per employee.
The IRS also provided limited transitional relief from the new excise tax to small employers who reimbursed or paid health insurance premiums for employees that was not through a group insurance plan.
For additional information, please contact your MWB representative.