Health insurance for employees

[gman]

If a business (s-corp) pays health insurance on its employees, is it deductible to the S-corp. Would the employees have to pay any tax on that benefit?

thanks

[Bees Knees]

Deductible by the employer and tax free to the employee...

TTB, page 13-29 says:

Employer-provided health insurance (§106). The value of employer-
paid health insurance provided to employees is excluded
from employee taxable wages. This can include contributions to
Archer MSAs and HSAs. It does not include long-term care benefits
provided through flexible spending arrangements.

There is no difference between an S Corp, C Corp, Sole prop, or partnership…if such business is an employer, Section 106 applies.

The only exception to this rule is if the employee of the S corp is also a more than 2% shareholder.

TTB, page 13-26 says:

S corporations and partnerships. Employee-shareholders of
C corporations generally can take advantage of tax-free fringe
benefits offered to all common law employees. Partners of partnerships
are not common law employees and generally cannot exclude
fringe benefits from income. For purposes of the excludable
fringe benefit rules, an S corporation is treated as a partnership,
and a more than 2% shareholder of an S corporation is treated
as a partner for purposes of certain fringe benefits (IRC §1372).
A more than 2% shareholder of an S corporation also includes
members of the shareholder’s family, including a spouse, children,
grandchildren, and parents. (IRC §318)

Under Revenue Ruling 91-26, medical benefits paid
by a partnership or S corporation are reported
to partners and S corporation shareholders as
follows.
• A partner performing services for a partnership
treats medical benefits as guaranteed payments.
Include on line 4, Schedule K-1. Also enter in
box 13, Schedule K-1, using code M.
• A more than 2% shareholder of an S corporation performing
services as an employee treats medical benefits as taxable wages.
Report in box 1, Form W-2. Also identify in box 14, Form W-2.
However, if the requirements for exclusion under IRC section
3121(a)(2)(B) are satisfied, the taxable portion is not subject to
FICA withholding or FUTA. These same rules apply to HSA
contributions contributed by the S corporation for the more
than 2% shareholder. (IRS Notice 2005-8)