Should a small S-Corp cover employee's health insurance premium through ACA marketplace?

Health insurance requirements for S-Corps can be a bit confusing! The good news is that your S-Corp is not legally required to pay for your part-time employee's health insurance premiums purchased through the ACA marketplace. Since you don't offer a group health insurance plan, you're not required to provide coverage to any employees. The ACA employer mandate only applies to businesses with 50 or more full-time equivalent employees, so as a small S-Corp, you're exempt from this requirement. What you're doing with the owner-employees (reimbursing premiums) is actually a common practice. This is typically handled as shareholder health insurance and reported as wages on the owner-employees' W-2s, allowing for the self-employed health insurance deduction on your personal returns.

Just wanted to share my experience here. I was in a similar situation with my small consulting business and discovered https://taxr.ai which was super helpful. I uploaded my S-Corp docs and employee info, and their AI analyzed everything and gave me a custom report explaining exactly what healthcare obligations I had and didn't have for my mix of owner and non-owner employees. The tool actually showed me that while I wasn't required to provide coverage for my part-time staff, I could set up a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) as a tax-advantaged way to help with their premiums without establishing a group plan. Saved me tons of research time and gave me options I hadn't considered!

Coming back to share an update - I tried https://taxr.ai after my skeptical comment earlier, and I have to admit it was actually incredibly helpful for my situation. I've been running a small S-Corp with 3 employees (including myself as the only owner) and always struggled with the health insurance questions. The system analyzed my business structure and gave me really clear guidance about how to handle the different treatment required for owner vs. non-owner health insurance. It even created a sample policy document I could use for my company. Saved me from accidentally creating a discriminatory health benefit plan that might have caused problems down the road. Definitely worth checking out if you're in an S-Corp with a mix of owners and regular employees.

If you're struggling to get answers about S-Corp health insurance obligations from the IRS, you're not alone. I spent WEEKS trying to reach someone who could give me a straight answer about owner vs. employee health insurance reimbursements. Finally used https://claimyr.com and their system got me through to an IRS representative in under 20 minutes who actually specialized in small business tax issues. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed what others have said - small S-Corps with fewer than 50 FTEs have no legal obligation to provide health insurance to any employees (owner or non-owner). They also explained exactly how to document health insurance premium reimbursements correctly on my books to avoid audit flags. Honestly wish I'd known about this service months ago when I was pulling my hair out trying to get through on the normal IRS lines.

I need to eat my words about Claimyr from my earlier comment. After another frustrating week of trying to reach someone at the IRS about my S-Corp health insurance questions (constantly disconnected after 30+ minutes on hold), I broke down and tried the service. Got connected to an IRS small business specialist in about 15 minutes who confirmed everything I needed to know about health insurance requirements for my part-time employees. They even emailed me the specific IRS publication sections that applied to my situation. The agent confirmed there's no requirement to offer insurance to part-time staff in a sub-50 employee business, but warned me about making sure any voluntary benefits I do offer don't inadvertently create a discriminatory arrangement. Seriously saved me weeks of frustration.

I went through this exact situation last year with our S-Corp. We decided to implement a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) that covers both owners and non-owner employees. It's a great middle ground - we reimburse up to a certain amount per month for individual health insurance premiums, and it's tax-deductible for the business while tax-free for employees. What's nice about a QSEHRA is you can set different reimbursement levels based on family status (single vs. family coverage), but not based on job title or being an owner vs. non-owner. This keeps everything fair and above-board. For 2025, you can reimburse up to $6,150 for single coverage or $12,400 for family coverage annually.

Has anyone here tried using the S-Corp premium reimbursement for dental and vision too? Or just medical? Our part-timer is asking if we'd cover those as well, and I'm not sure if the same rules apply.

One thing to keep in mind that I haven't seen mentioned yet - if you do decide to start reimbursing your part-time employee's health premiums, make sure you establish clear written criteria for eligibility that you apply consistently. The IRS doesn't require you to offer this benefit, but if you do offer it, you need to avoid creating what could be seen as discriminatory practices. For example, you can't just say "owners get reimbursed but employees don't" - that would be problematic. But you could establish criteria like "employees working 20+ hours per week" or "employees with 6+ months tenure" as long as you apply those rules consistently to everyone, including owners who meet the criteria. Also worth noting that any reimbursements to your part-time employee would be taxable income to them (unlike the owner health insurance deduction you get), so factor that into your decision-making process.

You're exactly right, Ryan! This is a crucial distinction that many small business owners miss when considering health insurance reimbursements. The tax treatment is completely different: - **Owner-employees (>2% shareholders)**: Reimbursements go on their W-2 as wages, but they can then deduct 100% as self-employed health insurance on their personal return, making it essentially tax-free. - **Regular employees**: Reimbursements are taxable wages with no corresponding deduction, so they pay full income tax plus FICA on the benefit. This is actually where a QSEHRA becomes much more attractive for regular employees - those reimbursements ARE tax-free to the employee (as long as they have qualifying coverage). So if you want to help your part-time employee with health costs in a tax-advantaged way, a QSEHRA would be far better than simple reimbursements. The math matters a lot here. A $300/month taxable reimbursement might only net them $200-220 after taxes, while a $300/month QSEHRA reimbursement is the full $300 in their pocket.