Health Insurance and S Corporations
__________________________________________________________________
S Corporations that pay accident or health insurance premiums on behalf of a 2-percent employee-shareholder must include those payments as wages for income tax withholding purposes on the Shareholder’s Form W-2.
__________________________________________________________________
What if the shareholder’s ownership percentage is less than 2%?
IRS Notice 2008-1 indicates that only 2-percent shareholder-employees include these premiums on Form W-2. The term “2-percent shareholder” is any person who owns on any day during the taxable year of the S corporation more than 2 percent of the stock of the corporation.
__________________________________________________________________
What if the shareholder does not receive a Form W-2?
Accident and health insurance premiums paid or furnished by an S corporation on behalf of its 2-percent shareholders are considered fringe benefits generally furnished in consideration for services rendered. However, a 2-percent shareholder is not an employee for purposes of Sec 106. Accordingly, the premiums are not excludable from the 2-percent shareholders gross income under Sec 106. Therefore, these payments should be included on the 2-percent shareholder employees Form W-2. An S-corporation is entitled to deduct the cost of such employee fringe benefits on its income tax return.
_________________________________________________________________
Are the accident or health insurance premiums included on the 2-percent shareholders W-2 subject to Social Security and Medicare taxes?
The wages are not subject to Social Security and Medicare taxes.
___________________________________________________________________
Can the shareholder deduct the accident or health insurance premiums included on his or her Form W-2 on his or her Individual Income Tax Return Form 1040?
The 2-percent shareholder-employee may claim the premiums that constitute medical care for the taxpayer, his or her spouse, and dependents as a deduction from the taxpayers adjusted gross income.
_________________________________________________________________
How is the deduction taken?
The deduction is usually taken on page one of the shareholders Form 1040.
_________________________________________________________________
Are there any restrictions to the deduction by the shareholder on his or her Form 1040?
The deduction is not allowed to the extent that the amount of the deduction exceeds the earned income derived by the taxpayer from the trade or business with respect to which the plan providing the medical coverage is established. Also, the deduction is not allowed for amounts during a month in which the taxpayer is eligible to participate in any subsidized health plan maintained by an employer of the taxpayer or the spouse of the taxpayer.
___________________________________________________________________
Can the S corporation reimburse the shareholder for accident or health insurance premiums paid by the shareholder?
Yes. If the 2-percent shareholder makes the premium payments and furnishes proof of premium payments to the S corporation and then the S corporation reimburses the 2-percent shareholder-employee for the premium payments in the current tax year.
___________________________________________________________________
If the S corporation does not include the accident or health insurance premiums on the 2-percent shareholder’s Form W-2 can the S corporation still deduct the premium payments?
An S corporation is entitled to deduct the cost of employee fringe benefits under Section 162(a). However, the requirement to include the premium amounts paid on behalf of 2-percent shareholder employees is not optional. Therefore, amounts paid and deducted by the S corporation must be included on the 2-percent shareholders W-2. The Notice 2008-1 indicates that timely filed amended returns to claim the deduction under Section 162(l) may be filed if the taxpayer satisfies the requirements of the Notice.
___________________________________________________________________
Remember to always consult with your tax advisor regarding your income tax needs.
IRS Strengthens Withholding Compliance Program
The IRS has stepped up its withholding compliance program by making more effective use of information reported on W-2 wage statements to ensure that employees have enough federal income tax withheld from their paychecks. At the same time, employers are no longer required to submit potentially questionable Forms W-4 to the IRS.
For more information:
Withholding Compliance Questions & Answers
IRS Strengthens Withholding Compliance Program; Reduces Paperwork for Employers
News Essentials
What’s HotNews ReleasesIRS – The BasicsIRS GuidanceMedia ContactsFacts & FiguresProblem AlertsAround The Nation
e-News Subscriptions
IRS Resources
Compliance & EnforcementContact My Local Officee-fileForms & PubsFrequentlyAsked QuestionsNewsTaxpayer AdvocacyWhere to File
PART III – IN THE SERIES: HAVING IT ALL – YES OR NO
When I decided that having children was something that I wanted to do, I certainly didn’t plan on being a single mother. And I definitely didn’t plan on having a disabled child.
Likewise, when I decided that I wanted to have a career as a Certified Public Accountant (“CPA”) opposed to being a stay home mother, I didn’t have the life experience to really understand what was involved in that choice. I had no idea the level of stress raising a disabled child would add to the already stressful world of public accounting.
Now, one benefit of public accounting is that there is some flexibility. A CPA’s job is for the most part driven by deadlines. These include government imposed deadlines for filing your income tax return, or client imposed deadlines based on the clients various needs.
However, even with the imposition of all these deadlines, CPA firms can be somewhat flexible as long as you produce a competent product and meet client expectations. For me, this was a very attractive benefit of the profession.
If I needed to take time off during the day to take a sick child to the doctor, then I would make up the work time in the evening or on the weekend. It seemed like a win win. And for the most part, I think it was. In terms of the career choice, the potential for growth, job satisfaction, and compensation, public accounting turned out to be a pretty good choice for me.
Along with the choice was the attitude that being a CPA was a career choice and not a job choice.
What I mean by “career” as opposed to “job” is this:
When you have a “ job” you wake up each day, you commute to the place where you perform your duties, you put in your eight hour day, you get your five percent a year pay increase [if you’re lucky], and maybe if someone dies or retires you may get the chance to be promoted. Your job is not a major focus in your life. It’s a means to an end. Usually that end is paying your bills and taking the occasional vacation. A job is about existing. It’s about a paycheck.
It’s not to say that there is anything wrong with having my definition of a “job.” If you are happy with your job and your life, then you have made the right choice.
For me, a career is quite different. A career is something you feel passion for. A career involves setting goals and then finding ways to achieve those goals. For me it’s a primary focus in my life, something that I feel proud of and something that I strive to be better at each day. For me, my career goals are not something that can be defined by or attained in an eight hour day or a forty hour week. I am constantly looking for new opportunities or ways to improve myself. My career is something that I want to do, something that I choose to do, something that I find pleasure in. It’s not defined by money or by necessity, but by satisfaction.
By its very nature, a career is often life consuming. Careers take time and an incredible amount of energy. In my estimation anything less would just be a job.
So for me, what time or energy did that attitude leave for motherhood? Shouldn’t motherhood involve all the same aspirations and commitment as a career? For that matter, shouldn’t motherhood be a career?
Many times during my life motherhood and career seemed like two drowning women each one struggling to surface. But because of time and stress and obligation, the surface felt like a tiny hole just large enough to pull your head through and take the occasional gulp of air. And when Career would begin to drown, she would claw and fight and yank Motherhood under so that Career could surface and survive.
© Copyright 2008 Stacie Clifford. All rights reserved
