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Big change in self-employed health insurance deduction?

We are a small business (S-Corp) and our accountant sent us a letter that said the following: "The Internal Revenue Service issued a Headliner memo attacking the deductibility of health insurance premiums for S Corporation shareholders. The IRS contends that if the health insurance policy is in the individual's name and not the corporation's name (i.e. group health insurance) the premiums will not be eligible for the self-employed health insurance deduction. "

Then they gave us these options

1.. Do nothing, lose deduction. 2.. Hire spouse to qualify for group coverage. 3.. Set-up a Health Reimbursement Account, which could be expensive. 4.. "We have worked with our legal counsel and have developed a standardized Health Reimbursement Account (HRA) which we can customize and you can adopt into. There is a one-time cost to you of $150 to set-up, which is due prior to receipt of plan documents, and a one-hour of billable time per year to maintain the plans." When we rec'd this letter, we checked with our medical insurance agent to see about switching to group, rather than individual, coverage. We explained why, and he said he works with hundreds of small business owners, and never heard of this change in the law, and nobody else has asked to do this. His accountant said there has been no change. Other accountants we called for a second opinion said they haven't heard of any change, neither.

We told our accountant that, and he said he can't believe others in his profession don't know about this.

What's the scoop. Is the above info from our accountant correct? Any advice would be appreciated!

Reply to
DK
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Ask to see the Headline memo.

Reply to
Peter Saxton

"DK" wrote

HSA's aren't expensive to establish. While you need "a plan", you can write it on a napkin while at lunch if you wanted to.

Any bank can help you establish the HSA bank account. While they might not be able to write your plan for you, some banks may have standard documents, or can refer you to someone who can for a nominal fee.

Sounds like he has a blank form on his hard drive that he just fills in the names and amounts.

Sounds like he's trying to get year-end billings up.

While the IRS might get pissy about health insurance being in the individual's name, that mostly has applied to buisnesses with multiple employees. You don't really have a "company plan" with seven individual policies. But for a self-employed person, a single member LLC, or for a sole shareholder "S" corp, it's much cheaper to have an individual policy than to make it a "group" policy (if you can even do that). Cheaper expenses genersally means, less losses or more taxable profits. I doubt the IRS will deny a deduction because you took the cheaper route to gain the same coverage.

Reply to
Paul Thomas, CPA

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