Question

SE Health Insurance Premiums Deduction vs Section 105 Spouse HRA plan

Forum|Forum|3 years ago
September 6, 2022
1 reply
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Hello,

I have my own LLC therapy company that is taxed as an S-Corp. My wife does a lot of the billing for services, scheduling, etc for me but I have never paid her a wage as everything I have read basically says you are just moving the same taxes around on your returns. I started reading about paying her via medical expense reimbursement through an HRA 105 plan. I guess my question is, I already deduct my SE Health Insurance premiums but would there be any tax benefit to paying her through the 105 and deducting them that way instead? My current SEHI deductions comes off on my 1040 Schedule 1 line 16. Thanks for your time!

Not A Product Question

O

Opus 17

Employee

You need to see a tax professional. Someone who does work for the S-corp must always get a W-2 for services performed, and that includes you as the owner, as well. It's not just moving the same taxes around. Paying your wife a fair wage for work performed also gets her social security credits that will benefit her if she becomes disabled or retires. It is also required that you pay a fair wage for work performed before you can distribute additional profits, because not paying a fair wage means you are evading social security and medicare tax, which may be illegal.

Then, there are special rules for employees of an S-corp who are owners or are related to the owner. You can set up an HRA plan for your unrelated employees as an employee benefit if you want, but you may be limited in setting up such a plan for a spouse.