HSA premium, cost, contribution

[TAX]

Client, S corp, 100% owner, paid for HSA (assuming premium) to Insutance company. I know that premium paid must go on W-2 as add on to wages (box 1) but how about any cost or contribution for HSA plan?

Thanks!

[veritas]

HSA contributions for the 100% owner

are distributions.

Deduct contributions on the 1040.

[KJ Judd]

HSA contributions need to be included in Box 1 as wages (but not box 3 or 5) same as health insurance premiums.

[veritas]

Not according to

the IRS pub I read. Pub 15

"Partnerships and S corporations. Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances."

But it's the same difference in this case.

[TAX]

HSA contributions need to be included in Box 1 as wages (but not box 3 or 5) same as health insurance premiums.

I thought that contribution is deducted on second page of 1040. So amount paid by Scorp for HSA contribution should be treated as personal distribution.

[KJ Judd]

2008 TTB Deluxe p. 19-14 "health insurance benefits paid for a more than 2% s/h are taxable as wages but not subject to FICA....The HSA contribution made on behalf of the employee-shareholder should be reported as code "W" in box 12, Form W-2. The shareholder is then able to deduct these amounts as an adjustment to income on Form 1040."

So if the company makes the HSA contribution, it's treated as wages on the W-2 and then the shareholder gets the deduction on Form 1040.

[Bees Knees]

the IRS pub I read. Pub 15

"Partnerships and S corporations. Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances."

But it's the same difference in this case.

A very misleading statement by IRS. Pub 969 page 7 says:

contributions by an S corporation to a 2% shareholder employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. The shareholder-employee can deduct the contribution made to the share-employee's HSA

1. S corporations do not pay guaranteed payments to 2% shareholders. The Pub should have said they are treated as wages.

2. A distribution by an S corporation or partnership is not always taxable to the partner or shareholder. Thus, Pub 15-B directly contradicts the clear rule that a partner or shareholder receiving any kind of health benefit must be taxed on the benefit.

Thus, the only way to properly treat HSA benefits paid on behalf of a partner or 2% S corp shareholder are to treat them as taxable compensation (guaranteed payment to partner - taxable W-2 wage to the shareholder).

TTB provides the correct reporting instructions.

[veritas]

Since the taxpayer is not

[QUOTE=Bees Knees;69995]A very misleading statement by IRS. Pub 969 page 7 says:



Thus, the only way to properly treat HSA benefits paid on behalf of a partner or 2% S corp shareholder are to treat them as taxable compensation (guaranteed payment to partner - taxable W-2 wage to the shareholder).


deducting the contribution on the corporate return it is taxable to the shareholder.

But I have to agree with Bees. For my clients 2007 W2s I did as he indicated. This year I recorded the payments as distributions because it was easier and in the end the results were the same.