SEHI for More Than 2% SCorp Owner

[TAXNJ]

My question is NOT whether he can deduct SEHI; he can if it is added to his compensation. My question is: Does he qualify for an increased retirement deduction due to the higher amount of compensation reported in Box 1 of the W-2. In other words, he is claiming extra comp and then deducting SEHI. Can he use the total comp in Box 1 to qualify for retirement contributions? Or does he have to use Box 3, and disregard the health insurance included in Box 1?

See Notice 2008-1 where it provides 4 examples and if it helps with your scenario. Part III. Administrative, Procedural, and Miscellaneous

Notice 2008-1

Special Rules for Health Insurance Costs of 2-Percent Shareholder-Employees

[Burke]

This notice only pertains to the procedures for including the insurance premiums in gross earnings and/or wages on the W-2 and the deductibility of SEHI. If a TP wishes to deduct his Medicare premiums under this provision, it is allowable on the 1040, Schedule 1 as SEHI. His W-2 has to reflect the payment in Box 1 of wages on the W-2. If the information is input to any tax software, it is going to allow a deduction for an IRA taking the Box 1 amount into consideration in the calculation assuming he meets the other requirements. This would be comparable to a self-employed individual making an IRA contribution on his net earnings. An employee under a 401(k), etc-type plan gets the deduction up front as it is not included in Box 1 wages. The confusion arises due to the more-than-2%-shareholder being treated as an employee in one respect, and a self-employed person in another. Other income is also allowed in calculating IRA contributions. (For instance, taxable alimony in past years.)