Cream of the Crop 1/Cream of the Crop 1.iso/BUSINESS/SBA62.ARJ/FSBA.EXE/F241.SBE

Text File | 1992-04-30 | 6KB | 116 lines

@101 CHAP ZZ

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           │            MEDICAL BENEFIT PLANS             │
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Medical insurance and medical reimbursement plans) are among the most
common (and expensive) fringe benefits being offered by employers in
these times of skyrocketing medical costs.  Since individual taxpayers
who itemize deductions can now only deduct their personal medical ex-
penses and medical insurance costs to the extent such costs exceed 7.5%
of adjusted gross income, this fringe benefit is more important than
ever for tax purposes, since a non-discriminatory employer-provided
health care plan is deductible to the employer but not taxable to the
employee.

If you are in business for yourself, the only way to deduct the costs
of medical coverage for yourself (including reimbursement of medical
expenses) in full is to incorporate (as a C corporation--S corporations
may deduct the cost of such insurance on 2% shareholders, but the 2%
shareholders can only deduct 25% of the cost of such coverage, plus any
amount they may be able to get as an itemized deduction.

Unincorporated business owners do not get to deduct the cost of their
own medical coverage, in general.  However, for tax years before 1992,
self-employed individuals (sole proprietors or partners in a partner-
ship) may deduct 25% of their medical insurance costs in computing
adjusted gross income if they maintain a non-discriminatory health
care plan for themselves and their employees.  (Congress, in 1990,
extended this deduction through the end of 1991, and 1989 tax legis-
lation widened this deduction to cover more-than-2% shareholders
of S corporations as well.)

One way to get around this problem of non-deductible medical insurance
in an unincorporated business is where you have hired your spouse as an
employee of the business.  In that case, you may cover your spouse un-
der a company medical insurance plan, deduct such expense, and still be
covered yourself, as a family member under your spouse's coverage.
While this may seem a bit contrived, the IRS has blessed it in Revenue
Ruling 71-588, 1971-2 CB 91.

A medical reimbursement plan can be a particularly attractive tax-
saving device for a small corporation (C corporation), if you have
only a few or no employees.  For example, you can use the medical
reimbursement plan to cover medical expenses not covered by medical
insurance, such as annual deductibles or co-payments and other items
such as plastic surgery, hair transplants, orthodontics, dental care
and eyeglasses.  With a properly drawn reimbursement plan, all of
these expenses can be deducted from the corporation's income when
paid to you, and not be taxable income to you.

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                 │   URGENT WARNING TO EMPLOYERS!    │
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Note that group health care plans must allow an employee (or other
beneficiaries, such as spouse or children) to elect continued coverage
(typically for up to 18 months) under the plan after the employee
terminates employment, dies, or otherwise would lose coverage.  Failure
of an employer to provide this feature will cause payments under the
plan to become non-deductible and benefits or coverage provided to the
highly-compensated employees to become taxable.  In addition, the
Technical and Miscellaneous Revenue Act of 1988 added SEVERE PENALTIES,
in the form of an excise tax of $100 per day per beneficiary, if the
employer's failure to provide for such extended coverage causes an
employee or other beneficiary of the plan to lose coverage for a period
of time.  Most insurance companies should by now have re-written their
policies to prevent such an occurrence, thus the real risk is if you
have a self-insured (i.e., uninsured) medical reimbursement plan for
employees that fails to provide elective continuation coverage as
the law requires.

@CODE: HI

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           │      HAWAII PREPAID HEALTH CARE (PHC) LAW     │
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Hawaii is one of the few states, if not the only state, to REQUIRE that
employers provide prepaid health care benefits for their employees.
Employees must be provided medical and hospital care in one of three
ways:

    .  Medical insurance (or coverage under a health care plan such
       as Kaiser);

    .  A self-insured plan of the employer that has been approved by
       the state; or

    .  Under a collective bargaining plan that provides at least the
       minimum level of required benefits.

Note that for purposes of the Hawaii PHC law, an employer does not have
to cover the following persons:

    .  Workers employed for less than 20 hours a week;

    .  Agricultural seasonal workers;

    .  Insurance and real estate salespersons who are paid solely
       in the form of commissions;

    .  Individuals working for a son, daughter or spouse;

    .  Children under age 21 working for their father or mother.

The employer may pay the full cost of Prepaid Health Care coverage
but may instead choose to share part of the cost with employees.  The
amount that can be withheld from an employee's wages is limited to one-
half the premium cost, but not to exceed 1.5% of the employee's wages.

@CODE:OF
@CODE: LS
In @STATE, they shoot the wounded, due to budget constraints.

@CODE:OF