3121(a)(2)(B) - Insurance - more than 2% S shareholder

[duanecpa]

Please direct me to where I can locate this section.


I have a more than 2% shareholder who had the corporation pay for his family's health insurance. The total amount goes in Box 1 of the Form W-2 - need the additional information to determine if if also goes in Box 5 as well (individual has exceeded the FICA limit for 2010 through salary payments.)

Thank you.

[Bees Knees]

Section 3101(a) says that Section 3121(a) is the definition of wages for purposes of calculating FICA taxes.

Section 3121(a)(2)(B) says that the term "wages" does not include the amount of any payment under an employer plan on account of medical or hospitalization expenses in connection with sickness or accident disability. Since the health insurance is for medical or hospitalization expenses, it is not considered wages under Section 3121(a).

Thus, even though another code section says that the health insurance provided to a more than 2% S corporation shareholder is taxable for income tax purposes, Section 3121(a)(2)(B) says that it is not subject to FICA taxes, and therefore should not be included in box 5 of the W-2.