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Old 11th March 2008, 03:15 PM   #1
moiremusic
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Default Non-policy Health Insurance Compensation?

My first post here.

I've been running my own business with a partner for almost 5 years now. We've finally begun to do OK... we've moved into office space and have hired our first two employees. Until now we've all just been using individual health insurance. For reasons that I won't go into here, we still are not quite ready to get a group policy for the company just yet.

I've heard of companies using some sort of tax-free pay increase to help employees better afford their individual plans, but can't find any more information about this practice. Does anyone know what I'm referring to?

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Old 11th March 2008, 05:31 PM   #2
SeattleCPA
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I think you're referring to what's called a Section 105(b) plan. Basically, it's a written plan that provides for employer reimbursement of employee health expenses... E.g., you'll pay $300 a month (or whatever).

I see clients who've paid some "consultant" to set these things up... but you might ask your CPA... I regularly give my clients a boilerplate plate plan (just a written document) that probably does the job...

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Old 12th March 2008, 12:59 PM   #3
moiremusic
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Thanks so much, Steve! That was exactly the lead I was looking for. I'll definitely be bringing it up with my accountant when we meet next week. But I have a couple more basic questions for you, if you don't mind.
  • Will this type of plan cover all four of the employees? This includes two owners and two non-owners. The company is an LLC, and an S-corp if I remember correctly, and none of us are related.
  • How is this set up in general? Would we just pay a stipend to each employee each month (say $300), then at the end of the fiscal year submit that information to my accountant? Or is there some specific coordination with the government that needs to be done beforehand? The fact that it's deemed a "reembursement" in a lot of places I've read about it online makes it sound like there is some sort of oversite.

I probably should have mentioned that I am in the US. Dallas, specifically.


Last edited by moiremusic; 12th March 2008 at 01:10 PM.
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Old 13th March 2008, 05:07 PM   #4
SeattleCPA
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Default Sec. 105(b) Plans for S Corporations and LLCs

I think the main things are to have a written plan... and then to be non-discriminatory...

There are some tricks in how you do this, as I recall. But basically the same rules that apply to pensions (I think!) apply to Sec. 105(b) plans.

And, yes, your plan would be that you give each employee $300 a month or whatever for healthcare including insurance. For regular employees, this would be a tax-free fringe benefit. For you shareholder-employees, the treatment is a little murkier... but probably you treat it like self-employed health insurance premiums. The IRS's first notice of 2008 (2008-01) talks about S corporations and health insurance for shareholder-employees.

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