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Deduct Medical Expenses in Your S-Corp

Deduct medical expenses in your s-corp

You can get reimbursed for Medical Expenses!

This is an expense to the business which brings down the taxable income for the company. The payroll that is issued is not subject to Social Security and Medicare tax so the company saves on payroll taxes each year.

In turn, you get reimbursed for your medical expenses through your payroll that isn’t subject to the stated payroll taxes on your part as well, it comes to you as regular W2 taxable income (only subject to federal and state withholding) so you are also saving on payroll tax as there isn’t as much taken out each paycheck.

This is a major benefit of having reasonable compensation through your corporation.

When you are an active shareholder with a W2 wage through the company you can get reimbursed for out of pocket expenses & medical insurance premiums! This benefit to S-Corp owners is accomplished by utilizing a Health Reimbursement Arrangement (HRA ).

How does the Internal Revenue Service Define Health Reimbursement Arrangements?

Health Reimbursement Arrangements (HRAs): A health reimbursement arrangement (HRA) must be funded solely by an employer. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSAs. Source IRS.gov

Small Businesses Win

Previously, this type of benefit was not accessible to small businesses, but over time options for small corporations have become more and more established. You can be reimbursed each paycheck for medical bills you have paid out of your personal account. This benefit is great for your small business as you aim to be compliant in the S-Corp by providing reasonable compensation as an employee of your business.

How it works

  • It’s actually very simple. Keep track of your monthly premiums and out of pocket expenses.
  • You will then submit them to your payroll administrator each quarter.
  • You will also submit an annual form to the HRA benefit company with your yearly total of expenses.
  • You will get a partial wage and reimbursement for expenses.
  • These reimbursements are NOT subject to Medicare and Social Security withholding.
  • The reimbursement will be reported on your paystubs and your W2 at the end of the year.
  • This is a MAJOR benefit of having a reasonable compensation through your corporation.

Are you excited now?

We can help you create set up your HRA. Contact your bookkeeping and accounting professionals for small businesses in Detroit Lakes, MN or Fargo, ND at 218-847-5225. You will be talking with our medical plan administrator to make sure you get the best plan to fit your situation. Many people are signing up and you don’t want to miss this opportunity!