HSA >2% S Corp shareholder

[KJ Judd]

Contributions to a health savings account were made for a >2% shareholder. Contributions reported in Box 1 & Box 17 of W-2 correctly as required (Notice 2005-8). Question, where do I deduct the contribution on the individual tax return? When I read the instructions for Form 8889, you don't get a deduction for employer contributions.

My understanding is this works like >2% health insurance. You add to W-2, and deduct on individual tax return. Or is this not considered an employer contribution because > 2% shareholder? I know I should be able to claim the deduction, but don't want to get a notice on this. Has anyone encountered this yet?

[Delta]

Health Ins

Health Insurance paid by the greater than 2% shareholder is non-deductible. The corp. can still pay for the health insurance, but this is included in the W-2 income of the shareholder and is not taken as a deduction anywhere else. The health insurance is not taxable for social security/medicare, but is for federal and state (if applicable).

[rosieea]

Health Insurance paid by the greater than 2% shareholder is non-deductible. The corp. can still pay for the health insurance, but this is included in the W-2 income of the shareholder and is not taken as a deduction anywhere else. The health insurance is not taxable for social security/medicare, but is for federal and state (if applicable).

I'm not sure what you mean by "non-deductible." As long as the health insurance has been included in the shareholder's W-2 income, then the shareholder may take an adjustment to income on line 29 of the 1040. As for the HSA, I would think, but haven't researched this, that if the contributions were added to the shareholder's W-2 income, the shareholder would be entitled to an adjustment as computed on the 8889.

[Delta]

Code Sect 106

S corporation > 2% shareholders who are also employees would have the premiums added to W-2 wage income, exempt from FICA, however the corporation would still be allowed to deduct the premium payments. No adjustment is made on the shareholders individual return for the premiums thus being non-deductible to the employee/shareholder.

Yes the contributions made by the corporation to the HSA are included in income of the shareholder and are deductible as an adjustment on the 1040 form.

[KJ Judd]

I agree that you get a deduction for the HSA on 1040 line 25. My problem is how to enter the info on Form 8889 that flows to that line. If I put the employer contributions of $5000 on Form 8889 line 9, (which is also the total contributions on line 8), I end up with $0 on line 11 which the form calculates as the HSA deduction.

So are the contributions not considered "employer contributions" if they are on the >2% shareholder's W-2? In other words, I leave line 9 blank. I think this is how it has to be. But I can't find any guidance in the notices or Form instructions. Comments?

[Bees Knees]

TTB, page 19-22 and 19-23 example illustrates that the HSA is identified on the K-1 line 12, code S, other deductions.

Since the S corp shareholder is being taxed on the benefit, it is no longer considered employer provided benefits. It is identified as a separately stated item on the K-1 so that the shareholder deducts it in the same manner as if paid directly by the shareholder.

[rosieea]

S corporation > 2% shareholders who are also employees would have the premiums added to W-2 wage income, exempt from FICA, however the corporation would still be allowed to deduct the premium payments. No adjustment is made on the shareholders individual return for the premiums thus being non-deductible to the employee/shareholder.

Yes the contributions made by the corporation to the HSA are included in income of the shareholder and are deductible as an adjustment on the 1040 form.

I'm still confused. The corporation is deducting the premiums as wages, not as premiums. Since these premiums represent taxable income to the shareholder, the adjustment is available to him.

[Delta]

I was misinformed

I apologize, I think you are right, the health insurance CAN be deducted on the 1040 by the greater than 2% shareholder, similar to a partner in a partnership. I spoke with my colleague on this and they agreed that the information I was given previously was incorrect. Thank you for bringing this up because I have a client who will be in this situation this year....Thank you.