S-Corp health insurance and foreign earned income exclusion REVISITED

[appelman]

I am thinking that in my earlier post on this subject I may have been asking the wrong question. Payments by an S-Corp for an owner/officer's medical insurance are reported as wages on the W2, but they are not subject to FICA and Medicare. My new question is: are these amounts considered earned income for the foreign earned income exclusion? I can't find anything in Pub. 54 or the 2555 instructions that says no, but I'm still a little concerned.

[DaveinTexas]

What I could dig up

I have not run into this scenario before but I ran across this. If you look at the SEHI worksheet in your software (I use Drake Software but yours may be similar), you will notice that you first have to reduce Medicare Wages on line 11 of the worksheet by any FEI Exclusion you have taken for the same wages.

This tells me the IRS will not allow a "double deduction" or that you must reduce the wages that qualify for the SEHI deduction by the wages that qualify for the FEI exclusion.

I don't have any cites, just thought I would go to the instructions first. This isn't true, I Googled this for like an hour and couldn't find any help!!!

I would attach the worksheet but it is a greater size than what is allowed (34Kb; seriously??)

[appelman]

I agree.

And it appears that the amount that cannot be deducted above the line because of insufficient Medicare wages is carried to Schedule A. At least that's what my software does. I think this addresses the question in my earlier post, but not the question I am asking now. But maybe no news is good news. It would have certainly been easy to say, "Foreign earned income is income subject to FICA and Medicare withholding," if that really was what was intended.

I have not run into this scenario before but I ran across this. If you look at the SEHI worksheet in your software (I use Drake Software but yours may be similar), you will notice that you first have to reduce Medicare Wages on line 11 of the worksheet by any FEI Exclusion you have taken for the same wages.

This tells me the IRS will not allow a "double deduction" or that you must reduce the wages that qualify for the SEHI deduction by the wages that qualify for the FEI exclusion.

I don't have any cites, just thought I would go to the instructions first. This isn't true, I Googled this for like an hour and couldn't find any help!!!

I would attach the worksheet but it is a greater size than what is allowed (34Kb; seriously??)