S-Corp Filing, and health insurance

[ClimateMind]

Hi all,

I have a question about business/personal taxes and health insurance, and I want to see what you all think.

The situation:

Business:
- We have an PLLC S-Corp, jointly owned by myself and my spouse (50%) each
- My spouse and I are the only 2 employees
- We have historically maxed out our solo 401(k) plans for employee, and employer

Household:
- Married filing jointly
- Our income is:
  - Our S-Corp salaries
  - plus left over S-Corp business profits
  - plus some income from a rental property
- We have health insurance under our state ACA plan, for ourselves and our three kids, which, not surprisingly, ends up costing quite a bit

For a number of years in the 2010s, our income was low enough, and we had enough deductions, that our kids qualified for a free medicaid plan (medical and dental) and we qualified for a credit that significantly discounted our (adult) plans. The reason we qualified for all this was that in calculating net income, our state subtracted retirement and HSA contributions. Since we maxed out our 401k, this let do an income that was, on paper, below 200% of the poverty level for our household size. That always seemed somewhat questionable but we had to submit tax docs, etc., and it was always approved. However, I think at some point the state changed the rules, and put a limit on how many retirement contributions could be deducted.

That, plus our increased income, meant that a few years ago we suddenly did not qualify for the free medicaid plan, and had to start paying ~$950/month for kids health insurance. We still qualified for some tax credit.

Okay, that is the background! They thing I am trying to figure out is how to deal with this from a tax perspective. Basically, how can I claim my health insurance premiums to decrease what I owe in taxes? Does it make any difference if I list them as a business expense (so it ends up on my 1120S) versus on my personal taxes?

Before you say, "You should really ask your accountant!" I will say that yes, I do have an accountant, but he has offered me some confusing advice which I am not sure is correct. He said that if I receive ANY insurance tax credit during the year, then I can't deduct ANY insurance cost - for the business, or for the household; and that I might have to re-pay my credit at the end of the year anyway because my income is too high (even though the tax credit is based on the tax forms I submitted). So he recommends not accepting the credit. But, a) this doesn't make sense to me so I am wondering if he is wrong; and b) this means that I need to refuse to take credits each December, based on the chance that I might not really qualify for it the next year, which feels like a gamble - we're talking about $500/month in credits.

It is all made extra confusing because working with our state ACA office is challenging - I don't even know how I "refuse" a tax credit - it just gets applied automatically via the ACA plan application/selection process.

Okay, I could probably go on but I am basically confused and curious if anyone has any thoughts or recommendations, either about what to do or about whether what my accountant is saying makes sense.

[dandarc]

I always pay my premium in full throughout the year and then get self employed health insurance deduction / PTC when I do my taxes. I'm not in a place where there's any chance for those cost-sharing-reductions that turn silver plans to gold, and this is very simple for me. So I may not know all the rules - just what applies to my situation / how I do it. But as I understand it:

As an owner-employee, your W-2 should have health insurance premium paid by the LLC included in box 1 income (for federal income tax), and excluded for SS/Medicare tax. This is an expense for the 1120S, so obviously reduces your net profit there - pointing out just to make clear double-taxation isn't happening.

Then you claim the self-employed health insurance deduction on your 1040. The deduction will be reduced by any premium tax credit you're entitled to. There is a circular-relationship here - PTC reduces your SEHI deduction which increases your AGI which decreases the PTC . . . . So I personally just trust the tax software to do it right.

I don't know if there's any gotcha's out there - but that's how I understand it.

[dandarc]

Your accountant is correct that you might have to pay some PTC back that you've received throughout the year. That's how advance PTC works - you may get them throughout the year based on estimates of your income, but when you file you figure out what you're allowed with your actual income known and you settle-up. That works both ways - can increase taxes owed with your return or reduce the tax owed.

[dandarc]

One way to avoid that PTC happening throughout the year is to just estimate your income very high when you're applying. Only do this if you're not also going to be entitled to cost-sharing-reductions though - those are quite valuable if your income is low enough to get them. Play around with your state's website (reads like you're not using healthcare.gov) or the Kaiser calculator if you think you might be close.

[SeattleCPA]

I always pay my premium in full throughout the year and then get self employed health insurance deduction / PTC when I do my taxes. I'm not in a place where there's any chance for those cost-sharing-reductions that turn silver plans to gold, and this is very simple for me. So I may not know all the rules - just what applies to my situation / how I do it. But as I understand it:

As an owner-employee, your W-2 should have health insurance premium paid by the LLC included in box 1 income (for federal income tax), and excluded for SS/Medicare tax. This is an expense for the 1120S, so obviously reduces your net profit there - pointing out just to make clear double-taxation isn't happening.

Then you claim the self-employed health insurance deduction on your 1040. The deduction will be reduced by any premium tax credit you're entitled to. There is a circular-relationship here - PTC reduces your SEHI deduction which increases your AGI which decreases the PTC . . . . So I personally just trust the tax software to do it right.

I don't know if there's any gotcha's out there - but that's how I understand it.

+1... And that's a great description of how this works.

A less concise discussion appears here:https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues#treating