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There are no specific rules prohibiting or limiting the ability for a C Corp to pay and deduct as a business expense the cost of medical insurance. There are, however, tax implications to "highly compensated" employees and since you are the only employee those rules will apply to you. The benefit will be taxable income to you but the tqax produced will still far exceed the medical expense itemized deduction on your personal return. Here is a piece from the IRS about thyis. It contains links to other information you may also find useful:
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A fringe benefit is a form of pay for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.
Performance of services. A person who performs services for you does not have to be your employee. A person may perform services for you as an independent contractor, partner, or director. Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services.
Provider of benefit. You are the provider of a fringe benefit if it is provided for services performed for you. You are the provider of a fringe benefit even if your client or customer provides the benefit to your employee for services the employee performs for you. For example, you are the provider of a fringe benefit for day care even if the day care is provided by a third party.
Recipient of benefit. The person who performs services for you is the recipient of a fringe benefit provided for those services. That person may be the recipient even if the benefit is provided to someone who did not perform services for you. For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family.
Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Section 2 discusses the exclusions that apply to certain fringe benefits. Any benefit not excluded under the rules discussed in section 2 is taxable.
Including taxable benefits in pay. You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts.
Any amount the law excludes from pay.
Any amount the recipient paid for the benefit.
The rules used to determine the value of a fringe benefit are discussed in section 3.
If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. However, you can use special rules to withhold, deposit, and report the employment taxes. These rules are discussed in section 4.
If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. However, you may have to report the benefit on one of the following information returns.
For more information, see the instructions for the forms listed above.
A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable.
Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.
Qualified benefits. A cafeteria plan can include the following benefits discussed in section 2.
Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance).
Dependent care assistance.
Group-term life insurance coverage (including costs that cannot be excluded from wages).
Health savings accounts (HSAs). Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services.
Benefits not allowed. A cafeteria plan cannot include the following benefits discussed in section 2.
Archer MSAs. (See Accident and Health Benefits .)
De minimis (minimal) benefits.
Lodging on your business premises.
Moving expense reimbursements.
Transportation (commuting) benefits.
Volunteer firefighter and emergency medical responder benefits.
Working condition benefits.
It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education).
Employee. For these plans, treat the following individuals as employees.
A current common-law employee (see section 2 in Publication 15 (Circular E) for more information).
A full-time life insurance agent who is a current statutory employee.
A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.
Exception for S corporation shareholders. Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder.
Plans that favor highly compensated employees. If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. A plan you maintain under a collective bargaining agreement does not favor highly compensated employees.
A highly compensated employee for this purpose is any of the following employees.
A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock.
An employee who is highly compensated based on the facts and circumstances.
A spouse or dependent of a person described in (1), (2), or (3).
Plans that favor key employees. If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement does not favor key employees.
A key employee during 2011 is generally an employee who is either of the following.
An officer having annual pay of more than $160,000.
An employee who for 2011 is either of the following.
A 5% owner of your business.
A 1% owner of your business whose annual pay was more than $150,000.
After December 31, 2010, eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.
Eligible employer. You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year.
Eligibility and participation requirements. These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. You may elect to exclude from the plan employees who:
Are under age 21 before the close of the plan year,
Have less than 1 year of service with you as of any day during the plan year,
Are covered under a collective bargaining agreement, or
Are nonresident aliens working outside the United States whose income did not come from a U.S. source.
Contribution requirements. You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to:
A uniform percentage (not less than 2%) of the employee's compensation for the plan year, or
An amount which is at least 6% of the employee's compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less.
If the contribution requirements are met using option (2) above, the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee.
More information. For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations.
This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient's pay.
The excluded benefits are not subject to federal income tax withholding. Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2.
This section discusses the exclusion rules for the following fringe benefits.
Accident and health benefits.
Employee stock options.
Group-term life insurance coverage.
Health savings accounts (HSAs).
Retirement planning services.
See Table 2-1 on page 6 for an overview of the employment tax treatment of these benefits.
Table 2-1. Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section.)
This exclusion applies to contributions you make to an accident or health plan for an employee, including the following.
Contributions to the cost of accident or health insurance including qualified long-term care insurance.
Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits.
Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans).
This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following.
Payments or reimbursements of medical expenses.
Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). The payments must be figured without regard to any period of absence from work.
Accident or health plan. This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. The plan may be insured or noninsured and does not need to be in writing.
Employee. For this exclusion, treat the following individuals as employees.
A current common-law employee.
A retired employee.
A former employee you maintain coverage for based on the employment relationship.
A widow or widower of an individual who died while an employee.
A widow or widower of a retired employee.
For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.
Special rule for certain government plans. For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. See section 105(j) for details.
Exception for S corporation shareholders. Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder.
Exclusion from wages. You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages.
Exception for certain long-term care benefits. You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes.
S corporation shareholders. Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes.
Exception for highly compensated employees. If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes.
A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy.
A highly compensated employee for this exception is any of the following individuals.
One of the five highest paid officers.
An employee who owns (directly or indirectly) more than 10% in value of the employer's stock.
An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan).
For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations.
There are also tax benefits for which you should qualify. Here is some information concerning that, again with additional links:
Información en Español: Disposiciones del Acta del Cuidado de Salud de Bajo PrecioThe Affordable Care Act was enacted on March 23, 2010. It contains some tax provisions that became effective in 2010 or 2011, and more that will be implemented during the next several years. The following is a list of provisions now in effect; additional information will be added to this page as it becomes available.
Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. Exchanges will operate in every state and the District of Columbia. The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer's insurance company to help cover the cost of premiums. On Aug.12, 2011, the IRS issued proposed regulations that describe who will be eligible to receive the premium tax credit and how to compute the credit. The proposed regulations also describe how to reconcile any advance credit payments for health benefits purchased through an Exchange with the final credit amount. The proposed regulations provide numerous examples, solicit written comments and provide a notice of public hearing. Comments must be submitted by Oct. 31, 2011.
The portion of the law that will allow eligible individuals to use tax credits to purchase health coverage through an Exchange is not effective until 2014.
Exchanges will offer individuals a choice of health plans that meet certain benefit and cost standards. The Department of Health and Human Services (HHS) administers the requirements for the Exchanges and the health plans they offer. Additional information about the Exchange can be found at <a href="http://www.healthcare.gov/" mce_href="http://www.healthcare.gov/" title="blocked::http://www.healthcare.gov/ </body>