Exec. Medical Reimb. Plan in Sub S

[John3cpa]

My Sub S client pays medical insurance premiums for employees including 2% shareholders the cost of which we include in the 2% shareholders's W2. In 05 the majority shareholder had some med expenses which were not covered by the insurance and was reimbursed by the corp for them. He faxed me an "Executive Medical and Dental Reimbursement Plan" document dated June 1976 which in effect states that these reimbursements up to $10,000 per year will be "decuctible in computing the corp's taxable income pursuant to the Internal Revenue Code".

Is this correct, or should it have been included on the W2 along with the premiums? It looks like a "C Corp" deduction to me.

Thanks!!!

[OldJack]

The medical reimbursement plan and the insurance premiums should have been added to the W2 gross, box 1, and box 14 (not subject to payroll taxes). The S-corp still deducts the cost added to the W2 which reduces profit of the S-corp. Thus, on the 1040 the W2 income is actually offset by the reduced profit on 1040 Sch-E and the taxpayer takes a deduction for the insurance premiums on 1040 page 1, line 29, and the reimbursement plan on 1040 Sch-A.

Rather then redo the W2 this year I would add the reimbursement plan expense to other income line 21 (as it isn't subject to payroll taxes anyway) and inform the taxpayer S-corp how to do it in the future. Of course the S-corp still deducts the expense as employee benefits.

Had this been a C-corp it would not be added to the W2 and would only be a deduction for the corporation.

[John3cpa]

Many thanks

Jack,

Thanks for the help.

[Matt Sova]

S-Corp

Flow the medical reimbursement exp through via the K-1 line 12. The S-Corp net income will be increased by the medical expenses and the amount can then be put on Schedule A. Line 12 can also be used for Health Insurance if it is not put on the W-2.