S corp Health Insurance question please

[WITAXLADY]

I understand the more than 2% health ins being added to the W-2 wages.

Bookkeeper - took the salary and subtracted the ins for all lines 1,3,5 - giving him a lower paycheck so it is like pre-tax health ins.

I can add the health ins back to line 1 and correct the W-2, W-3

But shouldn't it be the original salary 3,5 and box 1 salary plus the health insurance?

Then

I know they have an employee health ins plan -

I do not know if he is part of it or this is reimbursing his own family plan?

Does this make a difference?

Does he have to be part of the company health insurance plan? They have 10 employees.

 

Thank  you,

D in snowy WI

[TaxCPANY]

Shareholder's health insurance premiums paid to a *company* plan, not a reimbursement of private insurance, added back only to Box 1 (and in New York Box 16 but not 18), not 3 and 5 (and coded as "SEHI" in Box 14).

There's a nice, big discussion of this in the TaxTalk group (used to be Yahoo Groups but now groups.io), a couple of years ago but the law is still pertinent.  The gist is that reimbursing private plans would be discriminatory, but not all practitioners agreed with various tweaks to achieve that.

[Medlin Software, Dennis]

The notice which started this issue was "incomplete". It reflected only a small part of the ramifications of the notice.  Thus, the proper handling is left up to interpretation.  ACA added complexity as well.

The keys are the amount (if eligible) is considered remuneration.  What most miss is remuneration are taxable and reportable as earned (benefited from), so this really leaves out annual adjustments (although I know of no enforcement reports).  For me, I include a proportional amount on each paycheck for ease of processing.  It raises withholding, but the employee could submit a revised W4.

There is nothing prohibiting reimbursement, within ACA allowed circumstances.

[WITAXLADY]

So Dennis - is that reimbursement then taxable? for health insurance if an officer? Or does it gert added back into box 1 on teh W-2?

thx

[Medlin Software, Dennis]

For the company to properly handle: Added to gross pay.  As allowed by statue, excluded from certain taxes such as likely SS, Medi, and UI). I have seen nothing which allows exclusion from garnishments, such as child and spousal support (sadly, something which seems to get overlooked as the family services folks likely do not dig deep enough).

So yes, other than specifically excluded items, the amount is remuneration, and taxable/reportable.  Thus the what I call "game" of only adding it to the W2 is not proper.

Whether the owner/emplyoee handles the amount, when properly reported, as an above the line deduction, is up to the owner/employee.

2008-1:

"Accident and health insurance premiums paid or furnished by an S corporation
on behalf of its 2-percent shareholders in consideration for services rendered are
treated for income tax purposes like partnership guaranteed payments under § 707(c) of
the Code. Rev. Rul. 91-26, 1991-1 C.B. 184."

"The 2-percent
shareholder is required to include the amount of the accident and health insurance
premiums in gross income"

That the amount may be an above the line deduction does not mean it was not reportable and taxable income, upon constructive receipt, and does not allow any special exception for paper handling via a once a year entry.

 

 

[WITAXLADY]

Thankyou.

That is what I told her... but they disagree.. Say since he paid it out of his wages - it should be subtracted off his wage.

I love it when clients do their own work..

D

[Medlin Software, Dennis]

If they were not an owner, then section 125 is possible. For owners, we get to deduct on our personal returns so the liability is nearly a wash.