Robert Loe CPA

How Does an S Corporation Treat Health Insurance Paid on Behalf of a Greater-than-2% Shareholder?

 

Q: How Does an S Corporation Treat Health Insurance Paid on Behalf of a Greater-than-2% Shareholder?

By: The National Association of Tax Professionals

A: The amount of health insurance is includable in the shareholder’s compensation (Box 1 of Form W-2) (Rev. Rul. 91-26, Situation 2), but not subject to FICA or FUTA (excluded from Boxes 3 and 5 of W-2) [Announcement 92-16].

On Form 941, the value of the insurance would be reported on Line 2, but not Line 5. On Form 940, report the value of health insurance on Lines 3 and 4; check box 4a.

The value of health insurance for greater-than-2% shareholders is subject to federal income tax (FIT) withholding though. The insurance is treated as supplemental wages for withholding purposes.

The S corporation receives a deduction for health insurance of greater-than-2% shareholders as compensation/wages on Line 8 or 9 of Form 1120S, depending on whether the shareholder is an officer.

The S corporation does not report the value of health insurance in Box 12 using code DD. The S corporation can, however, report the value of insurance in Box 14 of Form W-2 so that the shareholder has enough information to determine any potential self-employed health insurance deduction.

Note: If payroll is outsourced, it’s important to identify which employees are greater-than-2% shareholders.

 

For more information or to view the original article go to natptax.com > Tax Knowledge Center > DIY Research 

***Image courtesy of http://fa-ratewatch.f-advantage.com/2013/09/how-fannie-mae-fha-underwrite.html

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