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Posted by Neil on April 15, 2008, 2:03 am
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I am an independent contractor who has worked for a client for many years.
The client decided to pay for health insurance for me. However, since I'm
not an employee, I couldn't go on their plan. Instead, I pay for the health
insurance myself, and they reimburse me each month for the expense.
The problem arises in how to handle this on my taxes. If I count the
reimbursement as income and then list the health insurance premiums under
"Self-employed health insurance deduction" (form 1040, line 29), then the
expense comes off the 1040, but not the Schedule C, resulting in my paying
15% self-employment tax on the amount.
On the other hand, I could list it in the Schedule C under "Office Expense"
or "Other Expense." But I'm not sure if that's right.
Last, I could just not list it on my income in the first place, but list the
amount on the Schedule C that doesn't include the insurance premium
reimbursements, since they are, after all, reimbursements, not income. Then
I wouldn't have to list the expense anywhere.
Any advice is appreciated. Thanks!
Neil
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Posted by removeps-groups@yahoo.com on April 17, 2008, 3:26 pm
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> The problem arises in how to handle this on my taxes. If I count the
> reimbursement as income and then list the health insurance premiums under
> "Self-employedhealth insurance deduction" (form 1040, line 29), then the
> expense comes off the 1040, but not the Schedule C, resulting in my paying
> 15% self-employment tax on the amount.
For most employees I know of, part of their health insurance is paid
by the company and part by them. The part that is paid by the
employee is still subject to social security and medicare. They take
out 7.65% of the gross income, then subtract out health insurance
premiums, FSA, and 401k. I'm not sure how the employer's part of
social security works. Do they pay their 7.65% on the employee's
gross income and then pay their share of health insurance, or do they
pay their share of health insurance and then 7.65% on what's
remaining? I'm guessing it's the former. If this is the case, then
you do have to pay the full 15.3% social security tax, and deduct it
as an adjustment.
> On the other hand, I could list it in the Schedule C under "Office Expense"
> or "Other Expense." But I'm not sure if that's right.
Doesn't sound right to me.
> Last, I could just not list it on my income in the first place, but list the
> amount on the Schedule C that doesn't include the insurance premium
> reimbursements, since they are, after all, reimbursements, not income. Then
> I wouldn't have to list the expense anywhere.
That does not sound rigtht to me.
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Posted by Rich Carreiro on April 18, 2008, 10:40 am
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> For most employees I know of, part of their health insurance is paid
> by the company and part by them. The part that is paid by the
> employee is still subject to social security and medicare. They take
> out 7.65% of the gross income, then subtract out health insurance
> premiums, FSA, and 401k.
My experience is just the opposite. Most companies use a Section 125
plan for employee health and dental insurance, so that the employees'
share of those premiums is exempt from both income tax and SS/Medi
taxes, just like medical and dependent care reimbursement plans are.
It's been ages since I've seen a W-2 from someone where this wasn't
the case.
In other words, the health/dental insurance premiums and flexcomp
get subtracted from gross income, and then SS/Medi withholdings are
computed. Then 401(k) contribs are subtracted from that intermediate
total and income tax withholdings are calculated.
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Rich Carreiro rlc-news@rlcarr.com
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<< The foregoing was not intended or written to be used, >>
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Posted by Mark Bole on April 18, 2008, 11:28 am
Please log in for more thread options Rich Carreiro wrote:
>
>> For most employees I know of, part of their health insurance is paid
>> by the company and part by them. The part that is paid by the
>> employee is still subject to social security and medicare. They take
>> out 7.65% of the gross income, then subtract out health insurance
>> premiums, FSA, and 401k.
>
> My experience is just the opposite. Most companies use a Section 125
> plan for employee health and dental insurance, so that the employees'
> share of those premiums is exempt from both income tax and SS/Medi
> taxes, just like medical and dependent care reimbursement plans are.
Rich is correct. In fact, this is one reason why an employee can come
out ahead with a Sec. 125 (cafeteria) plan, even if they forfeit unused
money at the end of the year. Up to a certain amount, the FICA
(SS/Medi) savings are greater than than the forfeited amount.
-Mark Bole
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Mark Bole on April 18, 2008, 11:22 am
Please log in for more thread options Neil wrote:
> I am an independent contractor who has worked for a client for many years.
> The client decided to pay for health insurance for me. However, since I'm
> not an employee, I couldn't go on their plan. Instead, I pay for the health
> insurance myself, and they reimburse me each month for the expense.
The only kind of "reimbursement" that a client can provide to a sole
proprietor is for travel, meals, entertainment. See "Rules for
Independent Contractors and Clients" in Pub 463. Otherwise, whatever
they pay you is part of your gross income for the activity.
> The problem arises in how to handle this on my taxes. If I count the
> reimbursement as income and then list the health insurance premiums under
> "Self-employed health insurance deduction" (form 1040, line 29), then the
> expense comes off the 1040, but not the Schedule C, resulting in my paying
> 15% self-employment tax on the amount.
Yup. So be sure you are setting your overall fees appropriately to
cover your overhead for being self-employed. As a sole proprietor, none
of your clients have any say whatsoever on how you run your business,
including how you choose to provide health insurance for yourself. You
may think of it as a "reimbursement", but it is not.
> On the other hand, I could list it in the Schedule C under "Office Expense"
> or "Other Expense." But I'm not sure if that's right.
Nope, it's not right.
> Last, I could just not list it on my income in the first place, but list the
> amount on the Schedule C that doesn't include the insurance premium
> reimbursements, since they are, after all, reimbursements, not income. Then
> I wouldn't have to list the expense anywhere.
That's even more incorrect. You are failing to report income.
Remember also, if you *could* have been covered under a spouse's
employer plan, even if you are not, you are not eligible for a SE health
insurance deduction.
-Mark Bole
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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