Discussion:C Corp Medical Reimbursement Plan, No Salary
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| Revision as of 18:02, 26 October 2009 JR1 (Talk | contribs) (I seem to recall) ← Previous diff |
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| {{ForumReplyPost|UserID=Michaelstar|Date=26 October 2009|Text=Riki - if you find the answer from the org suggested by JR1 - please post that answer here with cites (primary - not secondary). The answer to this would be very helpful. | {{ForumReplyPost|UserID=Michaelstar|Date=26 October 2009|Text=Riki - if you find the answer from the org suggested by JR1 - please post that answer here with cites (primary - not secondary). The answer to this would be very helpful. | ||
| - | I would guess that the answer is no (but I really do not know the answer to this post) - he is an employee, no doubt about that part, but as you said, an uncompensated (no wages) employee. So here, the company is providing paid benefits to the employee without out any paid compensation. Good question.}} | + | I would guess that the answer is no (but I really do not know the answer to this post) - he is an employee, no doubt about that part, but as you said, an uncompensated (no wages) employee. So here, the company is providing paid benefits to the employee without any paid compensation. Good question.}} |
| {{ForumReplyPost|UserID=Kevinh5|Date=26 October 2009|Text=I vaguely remember Riley2 answering a similar question two years and maybe a few months ago. Has anyone searched?}} | {{ForumReplyPost|UserID=Kevinh5|Date=26 October 2009|Text=I vaguely remember Riley2 answering a similar question two years and maybe a few months ago. Has anyone searched?}} | ||
Revision as of 18:55, 26 October 2009
Discussion Forum Index --> Advanced Tax Questions --> C Corp Medical Reimbursement Plan, No Salary
Discussion Forum Index --> Tax Questions --> C Corp Medical Reimbursement Plan, No Salary
| 25 October 2009 | |
| I did a search, but only saw discussions (many!) related to S Corp shareholders and medical reimbursement plans. This question relates to a C corporation.
We have a client who bought an existing C Corporation a few years ago. He is the 100% owner. The business (a retail store) has been running at a loss ever since he bought it, and he is not drawing a salary though he works part time in the business. (He has outside income to live on.) Looking through the Quickbooks file, we noticed that he has been reimbursing himself for health insurance premiums and for medical expenses, as with a medical reimbursement plan. However, he is not on payroll. Can a C corp shareholder who is not drawing a salary have a medical reimbursement plan? My instinct is no, but I haven't been able to find anything definitive. One of the advantages of a C Corp is the ability to set up a generous medical reimbursement plan, but the context is typically for a shareholder-employee. Another issue is that he has employees, so a medical reimbursement plan would fail nondiscrimination rules as he does not cover any of his employees. Thanks for any help! -Riki | |
Douglasgreenberg@gmail.com (talk|edits) said: | 25 October 2009 |
| My humble opinion is that this plan probably flunks as a result of Section 105(h)(3) (which sets out the discrimination requirement for an HRA). As a result, the reimbursements would constitute income to owner.
In addition, the company may have a difficult time deducting the payments. The justification here would have to be as a general business expense under section 162 (reasonable compensation to the owner). However, if the owner does not have an employment contract with the company, then this compensation would be difficult to justify. (there may be other problems as well, see for instance - the limitation on self-employed persons from deducting in excess of net profits for health payments made to self). However, I say all this humbly because I am not an employee benefits guy. Please take my advice with a grain of salt. | |
| 25 October 2009 | |
| Hi Douglas - please take a look at the note I left for you on your Talk Page - your long user name was disrupting the formatting of the discussion forum index by stretching the "last poster" column. It'd be helpful if you could re-start with a shorter name. Thanks.
Riki - sorry to temporarily hijack your discussion - now back to your regularly scheduled programming... | |
Douglasgreenberg@gmail.com (talk|edits) said: | 25 October 2009 |
| Sorry! I noticed this too.. and then realized it was unwise to do my email address. Will change. | |
| October 25, 2009 | |
| I don't know that the total package of med reimbursements can't constitute salary...I recall some early BizPlan/AgriPlan examples where that would be the only comp. However, the bigger problem is the other employees, who he's required to cover. Very bad. He needs to repay those med expenses, or take them as comp. and gross up, or they're dividends. Or welcome his employees into the plan. | |
| 26 October 2009 | |
| Thanks, JR & Douglas. Aside from nondiscrimination issues, does anyone know any references allowing health insurance (and/or medical reimbursement plans) as a deduction for a shareholder not drawing a salary? | |
| October 26, 2009 | |
| I'd have to research that, same as you. Like I said, some BizPlan/AgriPlan stuff from years ago said you could. You might hit their sites, and 105Concepts, another outstanding outfit specializing in these plans. They'll know. | |
Michaelstar (talk|edits) said: | 26 October 2009 |
| Riki - if you find the answer from the org suggested by JR1 - please post that answer here with cites (primary - not secondary). The answer to this would be very helpful.
I would guess that the answer is no (but I really do not know the answer to this post) - he is an employee, no doubt about that part, but as you said, an uncompensated (no wages) employee. So here, the company is providing paid benefits to the employee without any paid compensation. Good question. | |
| 26 October 2009 | |
| I vaguely remember Riley2 answering a similar question two years and maybe a few months ago. Has anyone searched? | |
WIBadgerCPA (talk|edits) said: | 26 October 2009 |
| I don't know of any rules against this. Wouldn't this be the same as paying a retired employees benefits? I seem to recall that it is allowed for them, even if they are no longer working and getting a W-2. | |
WIBadgerCPA (talk|edits) said: | 26 October 2009 |
| Found the following in my research:
The IRS, citing Rev. Ruls. 62-199 and 75-539, has concluded that contributions made by an employer that are used exclusively to pay for accident and health coverage of retired employees, and their spouses and dependents, may be excluded from the retirees’ income under IRC Sec. 106. The IRS also concluded that the payment and reimbursement of medical care expenses to retired employees, and their spouses and dependents, were excludable from the gross income of retired employees under IRC Sec. 104(a)(3) or 105(b) (Ltr. Rul. 200520014).
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| October 26, 2009 | |
| I seem to recall that the main issue was whether they were receiving reasonable comp, and if the reimbursements/benefits were indeed the sole 'comp' and were reasonable, it was ok. Indeed, to create a false salary that would exceed that just to have taxable wages would seem to violate the spirit of the law. | |
