Health Insurance reimbursement >2% shareholder

[TaxGuyBill]

Here is the only gray area I can find. Suppose you have a S-Corp with one 100% shareholder and one non-shareholder employee. The S-corp owner makes an offer to the non-shareholder employee to have coverage under a two person group. Suppose the non-shareholder employee refuses the coverage. This would force the shareholder employee to an individual policy (as compared to a group policy).

In this instance only, I think the shareholder should maintain the IRS Notice 2008-1 benefits since a legitimate offer of coverage was made and refused.

OK I have s corp, Employees husband and wife and secretary. S copr pays health Ins for husband and wife. Secretary is covered by her husband at his employer. Husband and wife own 100% of S corp stock and both take reasonable salaries. B4 I was including health ins on w-2 as wages but not subject to the Fica,mt unemployment rules and deducting for AGI on personal return. Can I continue this way? If not viable alternative?

The corporation is reimbursing 100% of the insurance premiums for the shareholder/owner. To avoid discrimination, the corporation would also need to OFFER to pay 100% of the insurance premium for any employees. What employee would turn that down?

The IRS issued a Notice saying the discrimination penalty won't apply until they clarify things with more Regulations (which they have not done yet). HOWEVER, the way I read it, the IRS may not have the authority to do that because the discrimination penalty is part of the Health code, not the Tax code. The ERISA experts also say the penalty still applies.

http://www.irs.gov/pub/irs-drop/n-11-01.pdf

The reimbursements were included in box 1 wages only and duly reported on 941's. So what is the best way to correct this?

I would amend the 941s.

On the other hand, this year the $100 per day per penalty will most likely be waived for most people. The code indicates that if the taxpayer did not know about this, and has exercised "reasonable diligence" and had "reasonable cause and not to willful neglect", that the tax may not apply IF it is corrected within 30 days of finding out the error.

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

In general, when you see the term "HRA" is that taken to mean HSA's as well? Or is that a different animal?

That's a different animal. However, if the EMPLOYER is CONTRIBUTING to the employee's HSA that is NOT combined with an EMPLOYER High Deductible Health Plan, that might be problematic.

[dktax]

Already reported on 941 -

so would it be better to amend the 941 and report additional tax or amend the 941 to reflect wages reclassified as distributions? TP has new employee as of November 1 that would need health insurance. Other employees have always been covered through spouse's insurance.

[TaxGuyBill]

so would it be better to amend the 941 and report additional tax or amend the 941 to reflect wages reclassified as distributions? TP has new employee as of November 1 that would need health insurance. Other employees have always been covered through spouse's insurance.

From what I understand, wages and fringe benefits are "compensation". To keep the same "compensation", it would be taxable wages.