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Reimbursement to shareholder for ACA susidy

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Level 3

Shareholder has ACA health insurance. At the beginning of the year, thinking the S corp would not make much money, the shareholder qualified for ACA subsidy. The S corp is profitable, that the shareholder will not qualify for the Premium tax credit and the full return of the ACA advance payment premium tax credit is certain. The shareholder notified the marketplace mid year, and the shareholder is now paying the full premium and being reimbursed by S corp. ( will be included as box 1 wages on W-2)

Can the shareholder be reimbursed currently from the S corp in 2020 for Return of Advance Premium Tax credit that will be reported on the tax return, which in substance is health insurance premiums for a Full pay person. 

The shareholder made an estimated tax payment to cover the Return of the Advance payment of the premium tax credit in 2020.  

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Level 12

They can be reimbursed for the cost of health insurance.  The cost of the health insurance is the full amount, and the full amount is what should have been reimbursed the entire time.  What personal credit that taxpayer qualifies for should not affect the amount of the reimbursement.

As for your actual question for what to do now, yes, it can be reimbursed, but the real question is if the reimbursement will be subject to FICA or not.

Although my personal opinion is that logically it should follow the rules of a Accountable Plan (which requires timely reimbursement), I'm not aware of anything that actually states that.  In fact, Notice 2008-1 says "the S corporation reimburses the 2-percent shareholder-employee for the premium payments in the current taxable year", which seems to say it can be done anytime.

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Level 12

@TaxGuyBill 

"The cost of the health insurance is the full amount, and the full amount is what should have been reimbursed the entire time. What personal credit that taxpayer qualifies for should not affect the amount of the reimbursement."

But doesn't that mean the covered person would be double-dipping: getting the ACA subsidy and also paid by the employer? I thought the whole point of the reimbursement is Actuals, not Premium.

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Level 3

My client is certain that the advance premium tax credit ( the subsidy) will be paid back on the tax return in full. Otherwise I would not advise them to receive a reimbursement from the S corp.

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Level 12

@qbteachmt wrote:

@TaxGuyBill 

"The cost of the health insurance is the full amount, and the full amount is what should have been reimbursed the entire time. What personal credit that taxpayer qualifies for should not affect the amount of the reimbursement."

But doesn't that mean the covered person would be double-dipping: getting the ACA subsidy and also paid by the employer? I thought the whole point of the reimbursement is Actuals, not Premium.


The actual cost is the full amount of premium.  The Advance credit is merely a loan on an undetermined amount of the actual credit.

What double dipping?  The reimbursed amount is added to wage and Box 1 of the W-2.  There is no income tax savings for the actual reimbursement.  Then for the Self Employed Health Insurance deduction, that does account for the Premium Tax Credit.

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Level 12

I know this has been a moving target, but I was trying to understand this comment: "What personal credit that taxpayer qualifies for should not affect the amount of the reimbursement."

"If a small business doesn’t offer a group health insurance plan, a QSEHRA will let the business reimburse employees, tax-free, for some or all of the cost of purchasing individual market health insurance, on-exchange or off-exchange (if the plan is purchased on-exchange, the employee could still be eligible for a premium subsidy, but the value of the QSEHRA is considered when determining affordability of the coverage, and the amount of the ACA subsidy is reduced by the amount that the employee receives from the employer through the QSEHRA).

 

"Using a QSEHRA, the maximum amount that an employer can reimburse in 2020 is $5,250 for a single employee's coverage, and $10,600 for family coverage (these amounts are indexed by the IRS each year). The maximum reimbursement is also prorated by month, so an employee hired in the middle of the year would only be eligible for a prorated amount of the maximum annual reimbursement."

From: https://www.verywellhealth.com/employer-reimbursal-of-individual-premiums-4065150

 

"Under IRS guidance related to implementation of the Affordable Care Act (ACA), employers were not allowed to directly reimburse employees for the cost of individual market health insurance. This was true for both small and large groups, and employers faced steep fines for noncompliance.

 

But the 21st Century Cures Act opened the door for small employers to start reimbursing employees for individual market health insurance premiums as of 2017. And the Trump administration finalized new regulations in 2019 that allow employers of any size to reimburse employees for the cost of individual market coverage, starting in 2020."

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Level 12

As I said before, the amount of the credit does not affect the amount of the reimbursement.

You pointed out the reverse; the amount of the tax-free reimbursement will affect the amount of the credit.

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