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Wife as employee for extra 401k + health insurance

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  • Wife as employee for extra 401k + health insurance

    Hey all,

    I had a question regarding setting up my wife an employee and getting some benefits.

    I am currently a 1099 ER doctor currently in Texas working as an LLC taxed as an S corp.

    My wife is a stay at home mom however coordinates all my scheduling and does other miscellaneous stuff for my business. I go to multiple sites with multiple sources of income so she actually does quite a bit of work for me. I basically just show up where she tells me to go. I wanted to know if anyone has done what I am proposing.

    I was going to make my wife an employee of my S-Corp, similar to myself. That way I can have her open up a 401k and try to max out her employee contribution of approximately 19,000.

    I assume I would have to pay a little more than 19k + enough to cover her taxes. I realize I would have to pay self employment taxes for her so the 401k benefit could be a wash.

    The main reason I want to do this is to offer her a health insurance plan. Currently I cannot purchase health insurance through my S Corp unless I have 2 employees. One bring me, the other her.

    I was hoping to be able to offer it and then have her make me and my daughter as dependents.

    The reason I want the health insurance offer is to be able to get a PPO health insurance plan in Texas which from my understanding is not possible unless offered by an employer. I tried purchasing one through the marketplace and directly from insurance companies without success.

    Currently I myself have an HMO and a complex medical disease needing multiple sub specialists which often are not covered and big pain in the ****************** to be able to see. A PPO would make life much much easier.

    Has anyone tried this plan before? I feel like the PPO + benefit of the 401k for her would be worth it. Thanks so much.

  • #2
    As I understand the options, you are in a Catch-22.

    An S-Corp 2% shareholder-employee can not participate in an employee pre-tax health and welfare plan. This includes a spouse-employee who would be considered a 2% shareholder-employee through attribution. An S-Corp can pay or reimburse a 2% shareholder-employee's health insurance premiums, include them in Officer Compensation, report them as W-2 Box 1 wages, but not Box 3 SS wages or Box 5 MC wages and take the self-employed health insurance deduction. You could include your spouse and dependents on that plan. This would be considered a single individual plan and not an employer plan.

    Although a sole proprietor can hire a spouse as a non-owner employee and through a 105H medical reimbursement plan, pay for health insurance and OOP expenses. This is also true if they cover you and dependents on the plan. However, this does not meet your requirement for there to be two employees with plans. This is a single employee plan that happens to also cover you.

    I don't see a way for you to do what you want.