HSA Accounts

[Burke]

The US Treasury website states "Owners and officers with greater than 2% share of a Subchapter S corp cannot make pre-tax contributions to their HSA's through the company by salary reduction. In addition, any contributions made to their HSA's by the corporation are taxable as income. However, they can make their own personal contributions to their HSA's and take the "above-the-line" deduction on their personal income taxes." Ok, if such contributions have been made by the corporation (independent of salary), then how is it shown as taxable income to the owner? By1099-MISC? Or assumed as part of distributions since profits carry to K-1 as ord income? Misc item on the K-1? Or do you follow the same rules for corp-paid health insurance; i.e, include in Box 1 of W-2, but not in Box 3 or 5? And then include the amt in Box 12 as Code W? If that is the case, the corp deducts as salary?.

[Burke]

No responses, but further research appears to substantiate the inclusion of HSA payments by an Scorp for a more than 2% shareowner to be handled same as health insurance paid. Include in W-2, Box 1 and show in Box 12 as Code W. Unless I hear anything to the contrary, that is what we are going to do. Cite: www.biztaxtalk.com/node/554. This deals with HRA & HSA plans in combination, but the info is essentially what I was looking for.

[Questionguy101]

Interesting finding. So the conclusion is that HSA contribution by Scorp to a 2% owner is to be reported like health insurance premiums.

One question though. Scorp has made $3,000 HSA contribution to a 2% owner in January this year. But the S-corp did not know about this rule at that time and therefore has not reported the HSA contribution in the 1st QTR Form 941. Can they just add it back to the salary of the 2% owner in the 3rd or 4th QTR Form 941?

[Burke]

We dealt with this in another thread. For years, I have just added the health insurance to the last quarter 941 and the W-2 in these cases with no problems. Since FICA wages are not affected, I am not even sure Line 1 (941) and Box 1 (W-2) is matched by the IRS/SSA. The only CP letters I have ever seen have been to do with SS and MC wages (box 3 & 5) not agreeing with the 941. Or taxes actually paid versus what was reported. I believe there may be a way in Quickbooks to code the health ins/HSA payments so that they would be reflected in the payroll system, thus transferring to the 941 automatically, and to the W-2. But I haven't figured it out yet for this particular situation. I am fairly certain you would probably code the payment as compensation (not subject to FWT, SWT, FICA) as I have done it with other payments to clergy. I am not sure how it would auto-print in Box 12 as Code W. May have to override that.