How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12020
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

I am an owner of a one person scorp. I have a high deductible

This answer was rated:

I am an owner of a one person scorp. I have a high deductible health plan. Can I deduct medical and dental expenses. Do I need to set up a fsa or hra or hsa? If so, which is best for my situation and how do I go about setting it up?

First, lets deal with the deductibility of the all health insurance premiums for S-Corp owners, because that's where some folks make mistakes:

Health insurance premiums paid for more than 2% shareholders of an S-Corporation are generally not deductible by the S-Corporation. The correct procedure to account for these premiums is to report the premiums as wages on Form W-2 (box 1) however they are not subject to FICA and are not reported in box 3 or 5. The health insurance costs can be listed in box 14.

The shareholder then may deduct the cost of health insurance premiums paid as an adjustment to income on their individual tax form, Form 1040.

The result is the Corporation show a wage expense for the health insurance, reducing net income. The shareholder reports higher wages, and then offsets the wages with the Health Insurance deduction as an adjustment to income. Net result full deducion for health insurance cost.

So, again, S-corporation may not deduct such expenses - but might deduct these payments as wages paid to employees.

If shareholders are also employees of S-corporation - then S-corporation will report medical insurance premiums as wages on W2 - include that amount in box 1.

The employee will deduct that amount on form 1040 line 29 -

Now, on the HSA, to make out of pocket expenses deductible here are the 2012 limits:

Annual contribution limitation. For calendar year 2012, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,100. For calendar year 2012, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $6,250.

High deductible health plan. For calendar year 2012, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,200 (no change from calendar year 2011) for self-only coverage or $2,400 (no change from calendar year 2011) for family coverage, and the annual out-of pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do
not exceed $6,050 for self-only coverage or $12,100 for family coverage.

Hope this helps!

ON setting up the HSA itself,

You're not eligible to make HSA deposits unless you're enrolled in an HSA-compatible high deductible health insurance plan. You may need to provide enrollment verification to your HSA administrator.

If you set up an HSA without enrolling in an HSA compatible health insurance plan, you're inviting IRS problems.

If you enroll in a HSA-compatible health insurance plan, establish the HSA, then terminate the the insurance plan, you can still keep the HSA. However, you're not eligible to make additional HSA deposits if not enrolled in an HSA-compatible health insurance plan.

In terms of establishing the account, before visiting a bank or other financial institution to set up your Health Savings Account (HSA), call first. Many HSA administrators have centralized HSA operations, and the local branch may not be much help (in setting it up)

Where this is the case, you'll need to contact the HSA department or visit their website. Then after you've set up the HSA, you'll probably be able to use the local branch office to conveniently make the actual HSA deposits, if you prefer banking locally.

And if you like working online, as I do, there are plenty of providers that have online applications, and deposit facilities.

Here are some HSA administrators:

Advantage National Bank(NNN) NNN-NNNN
American Chartered Bank(NNN) NNN-NNNN
American Health Value(NNN) NNN-NNNN
Bancorp Bank(NNN) NNN-NNNN
Basic HSA(NNN) NNN-NNNNx888)
Blackhawk Bank(NNN) NNN-NNNN
Blue Healthcare Bank(NNN) NNN-NNNN
Choice Financial(NNN) NNN-NNNN
Entrust New Direction(NNN) NNN-NNNN NNN-NNNN
Exante Financial Services(NNN) NNN-NNNN
Farmers State Bank(NNN) NNN-NNNN
First American Bank(NNN) NNN-NNNN
Fayetteville Bank(NNN) NNN-NNNN
First Horizon MSAver(NNN) NNN-NNNN
HealthEquity(NNN) NNN-NNNN
Health Savings Administrators(NNN) NNN-NNNN
HSA Trustee Services(NNN) NNN-NNNN
HTH Wolrdwide Bank(NNN) NNN-NNNN
JPMorgan Chase - UniCare(NNN) NNN-NNNN
Mellon Financial(NNN) NNN-NNNN
National City Bank(NNN) NNN-NNNN
State Farm Bank(NNN) NNN-NNNN
Wellfund(NNN) NNN-NNNN

Positive feedback is appreciated (that's how we get paid), but if you have further questions, come back here so you won't be charged for a separate question.


Customer: replied 4 years ago.

I do have a HSA compatible insurance plan that is also high deductible. Can I open a HRA instead of HSA? Can I directly reimburse my self for medical bills?

Sorry, you can, but it wouldn't be the most advantageous from a tax perspective.

An S corporation shareholder is not treated the same as a "typical" or "non-family" employee.

Because a 2% or more shareholder of an S corporation is treated as a partner, the amount of fringe benefit the shareholder receives is REPORTED ON THE W-2 subject to Federal and State income taxes but not subject to FICA and medicare.

Publication 15-B states: 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.

So an S corporation shareholder may participate in an HRA, but has to report the amount of fringe benefit reimbursed by the corporation on the W-2.

Customer: replied 4 years ago.

so hsa is best?

Yes, in your case.

Lane and other Tax Specialists are ready to help you

Just checking back in to see if everything's going well.

If you don't already have one, you may want to consider a SEP (Simplified Employee Pension).

As a self employed business person, you can put in up to 25% of you income and deduct 25%. ... without the administrative cost of some of the other retirement plans.

And here's a tip .... use an age weighted, no-load fund and you keep costs down and don't have to worry about picking the investments in the portfolio.

... enjoyed working with you

Customer: replied 4 years ago.

Thank you!

You are welcome.
Lane and other Tax Specialists are ready to help you