Health Ins. Gaurenteed Pmts on 1065 subject to SE tax

[John of PA]

Hi everyone, it's been a while and I commend The Tax Book as my log-in info was still active. Does this sound correct that a 1065 partnership that separetly states the health insurance paid to the partners as Gaurenteed Payments on the K-1 also has to include those Gaurenteed Health Insurance payments as income subject to SE tax? Have a good Memorial Day weekend.

[veritas]

No

See page 20-2 in TTb for reporting of health ins. premiums for partners.

[John of PA]

Thank You

Thank You Veritas, I totally missed that section.

[JoshinNC]

Maybe I'm mis-reading the original question?

My reading of the OP's question is that their client, a partner in a partnership, had their h/I premiums paid by the partnership. This is a guaranteed payment, and IS subject to SE tax on the partner's personal return.

Was this the original question or am I reading something wrong?

[John of PA]

Thank you Josh, yes that was the question and you answered it. The health insurance portion of the gaurenteed pmts is subject to SE tax.

[veritas]

So then explain

why health insurance premiums paid for S Corp shareholders go on W2 subject to income tax but not subject to Fica?

[John of PA]

Thats correct and thats the big difference between filing as S or 1065. Filing as a 1065 all profits are subject to Soc Sec where S Corps, only the wages on the payroll are. There is a push in Congress to change that and make all S Corp profits subject to Soc Sec.

[S T]

Guessing something that "no - one" addressed - Another inequity in the system,

Why in the past were Sole Proprietors, also not allowed to deduct their Health Insurance Premiums, and the amount was SE Taxed?

So much for small biz!

Sandy

[veritas]

My reasoning

Code Sec 1372 says fringe benefits for an S Corp shareholder are to be treated the same as a partner. We all know that health insurance premiums paid for S Corp sharerholders are to be treated as taxable wages not subject to Fica or Futa taxes. So it seemed to me that would indicate health insurance premiums for a partner would be taxable as a guaranteed payment but not subject to self employment tax. After reading some I would say my reasoning was incorrect and the health insurance premiums for partners would be subject to SE Tax.

So much for logic and reasoning.

[John of PA]

Yes they are subject ot SE tax, that is the big tax difference between S Corp and 1065, however IRS can always challenge the S Corp wages as too low.

[veritas]

John

Yes they are subject ot SE tax, that is the big tax difference between S Corp and 1065, however IRS can always challenge the S Corp wages as too low.

Are you still talking about health insurance premiums or something else?

[John of PA]

Sorry, Health Ins Premiums