July, 2007

Health Insurance Reimbursements to Employees

If you own your own business, or you do books for someone who does, you may already know the owner’s health insurance is treated differently on tax returns than the other employee’s health insurance benefits.

But what if your employee is covered by their spouse’s health insurance, and they don’t want to be on your company plan, or if they have their own insurance?

According to the IRS Revenue Ruling 61-146 from back in 1961, there are three things you MAY do to “reimburse” the employee:

  1. Reimburse the employee once or twice a year for the employer’s share of insurance premiums upon proof of prior payment of the premium by the employee.
  2. Issue a check to each employee a check payable to the employee’s particular insurance company, or
  3. Issue a check as in #2, except payable jointly to the insurance company and the employee.

If you use one of these methods, the contributions qualify to be excluded from taxable income to the employee (under Section 106 of the IRS Code).

Note: this does not include writing a check directly to the employee, and telling them “it’s for health insurance” and hoping that’s what they use the money for.

The employee actually has to write the check for the health insurance—if they’re not paying for it themselves, that is, if the spouse’s employer is paying for it, then the money you’re giving them is NOT for health insurance—they’re not using the money for health insurance and is not eligible to be excluded from the employee's income.

Further, if the employee is ABLE TO DECIDE what to spend the money on, IT IS PAYROLL and is subject to payroll taxes.

If you follow one of the 3 rules, the employer can deduct the expense as a business expense. If you don’t follow one of the 3 rules, the employer may still deduct the expense, but it is includable as income to the employee and needs to be included on the employee’s W-2 at year end.

Classes – "The 'S' Corporation," “Schedule C,” and Basic Payroll

Andy will be doing a presentation on Why I love the “S” Corporation for the Professional Bookkeepers’ Association Wednesday, July 18th at 5:45 pm at the Buttercup Grill & Bar, 660 Ygnacio Valley Road, Walnut Creek. If you’d like to attend, please contact contact at (925) 284-2826.

Andy’s Preparing your own Schedule C class at the Small Business Administration in SF, the next class is scheduled for July 10th at 6 pm. Click on
http://web.sba.gov/calendar/public/index.cfm?grp=13&op=group to sign up. This class covers basic business tax preparation and is intended for new business owners who want to know more about their own taxes. It’s free, but they’d like you to register.

Also, in conjunction with the IRS and EDD, Andy's going to be doing some Basic Payroll seminars coming up in the near future. The next presentation will be in San Francisco on July 25th, 9 am – 3 pm. This is a free seminar but you should reserve your spot by calling 866 873-6083 or on line at http://www.edd.ca.gov/taxsem/txsemrs.asp?SemID=2449

Andy will present the same Payroll seminar in San Rafael at 120 North Redwood Drive, 2nd floor, Redwood Room August 1, 9 am – 3 pm. Reservations may be made at 866 873-6083 for the Federal/State Basic Payroll Tax Seminar, or on line at http://www.edd.ca.gov/taxsem/txsemrs.asp?SemID=2805

New Additions to the Office

We’ll be adding a future staff member to our office on or about August 24th, although he won’t be answering phones or preparing taxes, we’re expecting he’ll take up considerable staff time.

For those of you who didn’t get the subtlety above, Kimberley is 7 months pregnant and is due August 24, so we may be a bit distracted around this time. Nedrah and Sara are both licensed CTEC’s (California Tax Preparers), and they are qualified to assist you.

October 15th Tax Deadline

The deadline for tax returns on extension from 2006 is October 15th. The deadline is the same for personal and corporate returns. Please don’t wait until the last minute—you’ll be filing late, which results in an additional penalty, plus it makes us frown. If we haven’t been contacting you to annoy you, we’re not worried about you. We try not to worry. Remember, we’re going to be distracted in August/September.


Well, published on the web. We have an article on Incorporating titled “Should I Incorporate?” posted to the Lafayette Chamber on-line Resources page available at:
www.lafayettechamber.org/pages/resourcelibrary.htm. This is a brief overview of types of entities and where they are useful. This article was later expanded into the “Why I Love the S Corporation” seminar.