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Controlled Group Questions


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I just posted a very similar question in the 401K section of this forum.  As a matter of fact, I basically just copied the initial scenario description from there, but there are some differences in the questions I have.  Hoping someone can help me determine if I have a controlled group issue between multiple businesses my wife and I fully or partially own.  Businesses and ownership is as follows:

  1. My wife owns 100% of a S-corporation that does not offer health insurance to her employees since most employees have coverage through their spouse.  We feel it would be redundant to provide additional coverage and instead utilize the funds she would be spending on health insurance to provide additional bonuses and extra paid vacation time to the employees.  This business and health plan have been active for many years.
  2. I am a sole-proprietor and have taken a self-employed health insurance deduction for several years.  We have been purchasing our insurance directly through the exchange.
  3. I have an associate that also operates his own sole-proprietorship.  That is his only business that I'm aware he owns and he is now on Medicare but I think his wife is still covered via a plan through the state (retired teacher).
  4. I am forming an S-corporation with the associate and we each will own 50% to start.  The s-corp was formed to pay joint administrative and office expenses and will have one employee.  We will still operate our own sole-props and will only reimburse the S-corp for our pro-rata share of expenses.  The associate and I will not be employees of the s-corp, but will be officers and directors.  I would like to offer health insurance to the employee, but also want to look at options to obtain health insurance for myself and family through the s-corp.

Considering the above, my questions are:

  1. First, are there any issues with me taking the self-employed health insurance deduction through my sole-prop even though my wife doesn't offer any health insurance to her employees?  While I believe I may technically be in a controlled group with my wife's business I am hoping that it doesn't impact my ability to take the SE health insurance deduction for our privately purchased insurance.
  2. Second, for health insurance benefit purposes, would the new s-corp being formed be considered a controlled group with my sole-prop and/or my wife's s-corp?  I'm thinking this isn't the case since I am not an 80%+ owner of the new corp.  Assuming it's not the case I am under the impression that there should not be any issues providing health insurance benefits to the employee even though my wife doesn't offer health insurance to her employees.
  3. Finally, if we are OK so far, would I be able to acquire health insurance for myself and my family by nature of being an officer of the s-corp without impacting my wife's business?  In a perfect scenario we will obtain a small group policy through the s-corp that covers employees and officers.  My partner would be exempted as he is on Medicare - though possibly he would be eligible to cover his wife through the group policy until she becomes eligible for Medicare.  In any case, I believe this all hinges on the new corporation not being in a controlled group.  IF it is part of a controlled group including my business and my wife's business I am hoping we can just reimburse the employee for individually obtained insurance through the health exchange and I can continue to purchase my own insurance and write if off via the SE health insurance deduction through my sole-prop.

Any help or insight on the above would be very appreciated.  Just trying to cover my bases so we don't get a nasty surprise down the road...

Thank-you!

Matt

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Duplicate posting.  Please put all responses at this link:  

 

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Hi David,

My apologies if this is considered a duplicate post.  Although the same business situation is involved in each post, in the other post I was asking about retirement plans and in this one it was about health plans.  I just thought it would be appropriate to ask about the health insurance implications here in the health insurance topic and the retirement plan implications in the retirement plans topic.

Matt

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Duplicate posts, for the purpose of getting wider readership, are OK.  However, it's very helpful to have all responses in one place.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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On 1/10/2021 at 12:32 PM, MHANSON said:

First, are there any issues with me taking the self-employed health insurance deduction through my sole-prop even though my wife doesn't offer any health insurance to her employees?  While I believe I may technically be in a controlled group with my wife's business I am hoping that it doesn't impact my ability to take the SE health insurance deduction for our privately purchased insurance.

MHANSON, everything has issues, but there are no nondiscrimination rules applicable at the current time to fully insured plans.

 

On 1/10/2021 at 12:32 PM, MHANSON said:

Second, for health insurance benefit purposes, would the new s-corp being formed be considered a controlled group with my sole-prop and/or my wife's s-corp?  I'm thinking this isn't the case since I am not an 80%+ owner of the new corp.  Assuming it's not the case I am under the impression that there should not be any issues providing health insurance benefits to the employee even though my wife doesn't offer health insurance to her employees.

For brother-sister controlled group you need five or fewer individuals estates or trusts that own 80%, then at least 50% looking to lowest percentage. (I know that's incomprehensible, but the only way to explain is with a table and I don't think I can do that in this box.) You've got 2 individuals that together own 100%, but looking at lowest percentage he owns in your separate business is 0, and vice versa, so does not look like a problem. I am only addressing your brief hypothetical, not your actual facts.

On 1/10/2021 at 12:32 PM, MHANSON said:

Finally, if we are OK so far, would I be able to acquire health insurance for myself and my family by nature of being an officer of the s-corp without impacting my wife's business?  In a perfect scenario we will obtain a small group policy through the s-corp that covers employees and officers.  My partner would be exempted as he is on Medicare - though possibly he would be eligible to cover his wife through the group policy until she becomes eligible for Medicare.  In any case, I believe this all hinges on the new corporation not being in a controlled group.  IF it is part of a controlled group including my business and my wife's business I am hoping we can just reimburse the employee for individually obtained insurance through the health exchange and I can continue to purchase my own insurance and write if off via the SE health insurance deduction through my sole-prop.

You should research "ICHRA" arrangements. Might work here, since could also reimburse for Medicare. But everyone with insurance must be in the ICHRA.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Thank-you Mr. Bailey, I appreciate your response.  Sounds like insurance through the s-corp could be an option - for both the employee and myself.  I did look into an ICHRA arrangement and am still considering that strategy as well.  However, we should be able to find a small group plan that is less expensive and has better coverage than what we are able to purchase individually so I am leaning in that direction.  If we do go the group plan route I can work something out with my associate who is on Medicare to accommodate him not benefiting from the coverage.

Thanks again,

Matt

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19 hours ago, MHANSON said:

However, we should be able to find a small group plan that is less expensive and has better coverage than what we are able to purchase individually so I am leaning in that direction. 

Yes. If the insurers can get their prices to be competitive with small group plans, ICHRAs could truly due to employer plans what 401(k)'s did to pensions.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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