Scorp owner health insurance premiums

[RightOn]

I think it has been discussed many times before in this forum that health insurance premiums paid by Scorp to a 2% owner has to be added on his W-2.

My question is: Does it have to be reported in the payroll check stubs too? For example, monthly salary of the 2% owner is $3,000. Health insurance premiums of the month is $600.

Gross pay: $3,600 ($3,000 regular salary + $600 health premium)

Deductions:
Fed WH: $300 (let's say this is the amount from the tax withholding table)
Soc Sec: $186
Medicare: $43.5
State WH: $100 (let's say this is the amount from the tax withholding table)
Health Insurance: $600
--------------------------
Total deduction: $1,229.50

Net pay = $2,370.50

Is this the correct way to report the payroll on his paycheck stub?

[RightOn]

Any taker for this question?

[JON]

We

always rush to have the insurance and any pernal use of auto on the final pay check. The health insurance has to W/H or FICA/MEDI so it is easy to do on the fin al pay check. The personal us of auto obviously has FICA/Medi so you need to have some ability to show that.

Health insurance has to be on the W-2 or you do not get a deduction above the line. We used to ament 4th qtr to get it there so it is no be deal, when you get it to the W-2 you just have to get it there.

[RightOn]

have the insurance and any pernal use of auto on the final pay check. The health insurance has to W/H or FICA/MEDI so it is easy to do on the fin al pay check. The personal us of auto obviously has FICA/Medi so you need to have some ability to show that.

Did you mean to say no W/H or FICA/MEDI?

[JON]

Yes

on the over 2% stockholder's health insurance = for 2013 and prior.

[RightOn]

on the over 2% stockholder's health insurance = for 2013 and prior.

Sorry, can you elaborate on what you said there? Did you mean the rules that we are talking about here is not valid anymore after 2013?

[JON]

2014

single plans may be out. References that you can pay, but it is compensation and not an above the line deduction. Medicare premiums now, if reimbursed, and to salary can get above the line and all seem questionable now in 2014. Supposedly the IRS has promised a review of these problems and some ansmers..

[JON]

This is from a different forum. IRS has promised surther information-will it come??

Re: S Corp Health Insurance (Corp or Individual name)?

http://www.aicpa.org/Publications/TaxAdviser/2014/January/Pages/clinic-story-04.aspx

Employee payment plans: Beginning in 2014, the PPACA market reforms are violated if employers reimburse or pay directly premiums for health care coverage (other than excepted benefits) that the employee purchases from a party other than the employer (e.g., on the individual market, including the exchanges). The notice refers to Rev. Rul. 61-146, which is the long-standing authority under which an employer may reimburse or pay directly a health insurance premium of an employee on a tax-free basis. The notice does not withdraw Rev. Rul. 61-146. Thus, while it appears that an employee payment plan would continue to provide tax-free reimbursements to the employee, the notice makes clear that such a premium reimbursement arrangement, including an HRA, will not satisfy the PPACA market reform rules.

Consequently, an employer that chooses to reimburse the premiums for health insurance coverage through other than an employer plan, such as premiums for policies purchased through an exchange, would be subject to the Sec. 4980D excise tax in addition to any other nontax ramifications for maintaining a plan that does not comply with the market reform rules. Effectively, the notice precludes employee payment plans for health insurance in 2014 and later years.

[RightOn]

Thank you Jon. Does this new rule apply to employers with more than 50 employees only? Or does it apply to everyone?

[TaxGuyBill]

This is how I read the law:

The $100/day penalty is for everyone that offers a “group health plan” that does not meet ACA standards. By dictionary definition, “group” means more than one person/employee.

A small employer (from 2-50 employees, see §4980D(d)(2) and link below) is NOT required to have a "group health plan" (defined at §5000(b)(1), see link below).

If the small employer has a group health plan through a "health insurance issuer" (defined at §9832(b)(2), see link below), the employer is NOT subject to the $100/day penalty (§4980D(d), see link below).

http://www.law.cornell.edu/uscode/text/26/4980D#d_2

http://www.law.cornell.edu/uscode/text/26/5000#b_1

http://www.law.cornell.edu/uscode/text/26/9832#b_2

http://www.law.cornell.edu/uscode/text/26/4980D#d

It does NOT say the small employer is not subject to the penalty if the employer offers a "group health plan" that is NOT offered through a "health insurance issuer". To me, that means the employer IS subject to the penalty if it offers it's own "health plan" (such as reimbursing premiums).

Again, the $100/day penalty is for offering a “group health plan” (at least 2 employees) that does not comply with ACA standards.

http://www.law.cornell.edu/uscode/text/26/4980D#a

[JON]

I

agree TaxGuy. I do think the IRS has been been questioned on all of this and has promised more information. Whatever that is worth..

[rock]

Going forward,

How does the sole shareholder/employee deduct costs of health insurance?
The s-corp has to purchase the health insurance?

[Lion]

We were promised more guidance coming out around June....

[Lion]

U.S. Master Tax Guide® (2015),322.Employee Benefits Provided to S Corporation Shareholders

Related Information – Federal
The tax treatment of fringe benefits ( ¶2085) paid to employees of an S corporation is different for owner-employees than for other employees ( Code Sec. 1372). 62 Fringe benefits paid to S corporation employees who are not shareholders, or who own 2 percent or less of the outstanding S corporation stock, are tax free. They can be excluded from the employees' taxable wages and are deductible as fringe benefits by the corporation. Employee-owners owning more than 2 percent of the S corporation stock, on the other hand, are not treated as employees for fringe benefit purposes, and their fringe benefits may not be tax free. More-than-2-percent owners are treated in the same manner as partners in a partnership ( ¶421).

Health Insurance Expenses. An owner-employee who owns more than 2 percent of the S corporation stock can deduct 100 percent of the amount paid for medical insurance for himself, his spouse and dependents under a plan established by the S corporation ( Code Sec. 162(l)(1) and (5); Notice 2008-1). 63 The S corporation must either pay the plan's premium payments itself or must reimburse the shareholder for the payments.

For purposes of the deduction, a more-than-2-percent shareholder's wages from the S corporation are treated as the shareholder's earned income. No deduction is allowed in excess of an individual's earned income within the meaning of Code Sec. 401(c) derived from the trade or business with respect to which the plan providing the health insurance is established.

Footnotes
62
FED ¶32,160; SCORP: 352.20; PTE §28,801

63
FED ¶8500, FED ¶32,161.50; SCORP: 352.20; PTE §28,815

[BHoffman]

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues

This sure isn't an authoritative cite, but it is pretty clear and dated Dec. 2014