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Group Health Plans: Owners, Non-Employees & Domestic Partners

Posted on October 3rd, 2016

Group health plans typically make coverage available to current or former employees and their spouses and children. However, some employers extend coverage to certain groups of non-employees. The most common example would be letting a business owner participate in the plan. Most types of business owners aren’t classified as employees for tax purposes, but rather they are said to be self-employed. 
Some employers also extend the group health plan to certain non-employees. For example, they may offer the group health plan to an independent contractor or a person who solely serves on the corporation’s board of directors. Additionally, some employers allow non-spouses to participate in the plan, such as a domestic partner.  
While these are all types of people that may be able to participate in the group health plan, they usually can’t participate on a pre-tax basis through the company. Below are some additional details.
As mentioned above, most business owners are self-employed and they aren’t considered employees. This means they are taxed a little bit differently than a typical employee. The consequence of this is that most business owners cannot pay for their group health insurance coverage on a pre-tax basis through the corporation’s Cafeteria Plan. This includes business owners who are classified as sole proprietors, partners in a partnership, and more-than-2% owners of an S-Corporation. However, self-employed people can take a tax deduction for their health insurance premiums when they file their personal tax returns.
Most business owners also cannot participate in the corporation’s Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA). In addition, any Health Savings Account (HSA) contribution should be made outside of the organization, and a tax deduction can be claimed when the owner files their personal tax return. 
The above information is not applicable to owners of C-Corporations because these types of owners are taxed in the same way that a regular employee would be taxed.     
The theme that should be starting to recur is that only employees can participate in the group health plan on a pre-tax basis. Non-employees cannot pay for their group health insurance coverage through the corporation’s Cafeteria Plan nor would they be eligible to participate in an employer’s FSA, HRA or HSA. 
Domestic Partners
Employees who elect coverage for their spouse and/or children can pay for this coverage pre-tax through the Cafeteria Plan. However, if an employee were to elect coverage for a domestic partner, that coverage could not be paid on a pre-tax basis through the corporation’s Cafeteria Plan. Similarly, domestic partners would be ineligible to receive reimbursements through the FSA, HRA or HSA of the employee.  
Subscribe to this blog at the top left navigation by entering your email address to learn more with Flexible Benefit Service LLC (Flex). The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice. 

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