What are health insurance options for me as a business owner, and can I deduct it?
What I want to cover here is just a small snippet of it. You really do need to talk to a health insurance agent about the options that exist for you in your state based on the unique factors of your company and your team. You're not required to have a group insurance plan for your business until you have 50 team members or more. But for those of you who might be in industries like mine, where the talent is really competitive, you may need to consider having some sort of health insurance benefit before you get to 50 just to be attractive to A-players. Now, I personally still can't compete with the bigger companies who offer 100% health insurance coverage, but we’re doing something so it minimizes that hit when we’re hiring team members.
When we were about 20 team members, we offered an FSA, which is a flexible spending arrangement. That has very specific rules tied to whatever the IRS is controlling. You're limited to how much money you can put into that. We got to the point where, as we were bringing in higher-level team members with more experience who are paid more, we added a second option — an HRA, a health reimbursement arrangement. The HRA still has a limit, but it's a little bit higher than the FSA, which is why we then at that point were offering both policies, depending on what your salary range was. So that's an option.
When it comes to your personal insurance, if you don't have a group plan, you obviously could go out and get a private plan, and that's by talking to any health insurance agent. Based on your income, you may or may not qualify for health subsidies. So again, it's really important that you talk to a qualified health insurance agent so they can walk you through all those details.
I do want to give you the answer to how you use this in your business, specifically if you're an S-corporation, because we see this done incorrectly all the time and we do our best to help our clients be in compliance when they made a mistake and then get them to fix it in the future, so that they are completely in compliance. You do pay for your health insurance out of your business as an S-corporation. Pay the premium out of your business and book it as health insurance expense. As the owner of the S-corp, assuming you own more than 2% — which in our case all of our clients do — you have to pick up your health insurance amount on your W-2 as W-2 income.
And if that sounds complicated to you, it probably should, because you aren’t in the business of running payroll. Use a payroll company. Make sure it's done correctly. So, I pay for the health insurance out of my S-corp. I pick up the health insurance amount on my W-2. Then when I file my personal tax return, there is a spot on your personal tax return — it's called adjustments to income — and you put your health insurance amount there so that it is reducing your taxable income. Those are the steps you need to take in order to make sure that those are pre-tax dollars that you're using because you do get a tax benefit for it.
But you got to do that. The two biggest mistakes we see is they're either not paying for it out of their business or they're not picking it up on their W-2. Again, get a good qualified accounting professional to help you do that the right way. It's very easy to do for an accountant, but like I just explained, there are 3 steps to make sure that happens the right way, so you get the max benefit without getting in trouble by doing it the wrong way.
That is how you do health insurance. Remember, profit is a choice. Have the courage and wisdom to choose it.
