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    PA S-corp health question

    What is a highly compensated shareholder?

    I am looking for clarification on taxable health insurance paid by the S-corp for a shareholder.

    PA states that health insurance paid for a more than 5% shareholder is a taxable wage IF the shareholder is a highly compensated employee.

    I asked for clarification on what exactly a highly compensated employee is and can get no definite answer from the state. They gave me verbatim what their law says: health insurance paid for a more than 5% shareholder is a taxable wage IF the shareholder is a highly compensated employee.

    Is highly compensated mean double the wage paid of the highest paid other employees? Or triple the wage paid ?? Just how much higher does a shareholder wage have to be to be considered a "highly compensated" employee????

    I have a shareholder who is paid $ 52,000 a year wages and has health insurance for the family paid by the S-corp in the amount of $ 8000.

    The highest paid "other employee" makes $ 25,000 and gets health insurance from the employer but pays for rest of the family's health in this plan.

    The health insurance from what I understand is NOT under a sec-125 café plan (although the client informed me that a previous insurance company told that the health was not taxable. They since have changed insurances and state this insurance company told them to ask their accountant) and there are NO other benefits.

    But my question is:

    I say that this shareholder is a highly compensated employee and the $ 8000 for health is taxable wages and his w-2 should reflect his PA wage as $ 60,000 same as his Federal wage line 1 on the w-2.

    PA will not tell me what it takes to be considered a highly compensated employee …..
    I would appreciate your opinions and/or if anyone knows where I can get written clarification on the law from the state.
    "And So It Begins!!!"

    #2
    Highly Compensated Employee

    I don't see how $52,000 a year employee would be highly compensated.In my area that is not enough to live on.

    Comment


      #3
      I agree

      well I do agree with you on that .. however ... in my area many families actually live on 25000 a year family of 4 ...

      Do you think that the state would look at cost of living to decide ???
      no matter ... if he still makes more than double his top paid other employee ..... is he considered highly compensated ??
      "And So It Begins!!!"

      Comment


        #4
        I tend to look at the AIG, and bank types and what they are getting paid. If your client is making 50% or less than what these hyenas are making, then your client should be safe.
        Dave, EA

        Comment


          #5
          have you looked at the salary for

          Your state legislators?

          Your client is in the poor house.

          Comment


            #6
            Maybe

            Maybe this will be of help, I know it is an IRS Pub (560), but within it defines the "highly compensated"


            looks like it could be either % of interest in the business (ownership) or could be the actual $$ amount of compensation if ranked as the top 20% of the employees by compensation factors.

            Sandy

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