TaxProTalk.com

Newly formed single member LLC, with S election to begin January 1. One owner and sole employee. Prior business activity was as a sole proprietor.

Owner/employee is retired and receives health insurance from their former employer, with the former employer paying a portion. Subsidized health insurance, not eligible for SE health insurance subtraction.

Can the S Corp reimburse the owner's premiums for the policy? After adding it to Box 1 of the W2, can it be subtracted or does this still fail as subsidized insurance?

Separate question: Can the S Corp pay for the owner and spouse's Medicare premiums? Spouse will be eligible in the next few months and the owner about 6 months after that.

Good news is the client is actually asking questions before taking action. How refreshing.

Pretty sure the correct answer is no, it is not deductible as SEHI due to the subsidized aspect. Personally I think that is such a BS part of the rules that I would likely go ahead and treat it as SEHI and let the IRS take it away if they complain.

How significant is the subsidy compared to the tax advantage to do it correctly?

Owner pays about $400/month. Former employer pays over $1K. Its a pretty good plan.

Medicare premiums can qualify as SEHI. I believe it was a member of this board that worked with his Congressperson to make this happen.

His retiree plan does not qualify as SEHI. If anywhere, it goes on Schedule A. So if he can pay the premiums out of the net salary he is already getting from the S Corp, he may as well do that. This is especially so if the extra salary would drive him over the IRMAA cliff.

Also, is his former employer's plan already deducted from his retirement pre-tax? If so, you would definitely be double dipping if you used it as SEHI.

Retiree share is paid from post tax pension proceeds.

Any other learned thoughts?

Employer subsidy disqualifies it from SEHI. Post-tax means that it is included on Schedule A, although I hope he doesn't have enough medical expenses to make it worthwhile.