2 % S/h

[Gretel]

I am confused. For a 2 % S/H employee all fringe benefits are supposed to be included in his W-2, per IRS instructions a 2 % S/H employee is not treated as an employee at all.

Per TTB this means that also Workers Comp. has to be included in wages. What about FUTA and SUTA? By this standards they should be included in wages as well as should FICA/Med. What am I missing?

[sandysea]

2 % S/h

Fringe benefits to a more than 2% s/h are NOT w/c insurance, unemployment taxes or any other employee taxes. A greater than 2% s/h IS an employee of the corporation if he is an officer or provides services to the corporation.

Fringe benefits include personal use of business assets, health insurance paid, some retirement benefits, life insurance, etc.

[Brad Imsdahl]

Per TTB this means that also Workers Comp. has to be included in wages.

TTB lists the fringe benefits that must be added to wages for a more than 2% shareholder on page 13-27. Workman's Comp insurance is not included in the list.

Where do you see it mentioned in TTB?

[Brad Imsdahl]

Fringe benefits include personal use of business assets, health insurance paid, some retirement benefits, life insurance, etc.

In the context of adding fringe benefits to a more than 2% shareholder's W-2 wage, retirement benefits and life insurance (other than group term life insurace) are not included in the list of benefits that must be added to wages.

[sandysea]

Is not the cost of group term life insurance for a < 2% s/h of up to 50K not included in gross income? And then what about discriminatory retirement plans? As far as the retirement plan was concerned, I was alluding to the qualified plan requirements. Sorry for the confusion

[Brad Imsdahl]

Is not the cost of group term life insurance for a < 2% s/h of up to 50K not included in gross income? And then what about discriminatory retirement plans? As far as the retirement plan was concerned, I was alluding to the qualified plan requirements. Sorry for the confusion.

And I was referring to the specific rules that only apply to greater than 2% S corp shareholders. Discriminatory retirement plans are included in gross income for all employees, not just S corp shareholders.

The fact is, it is sometimes miss-understood that the greater than 2% shareholder rule applies to all fringe benefits. That is not true. It is limited to a small list of benefits. Other benefits, such as qualified retirement plan contributions and other benefits listed in TTB page 13-7, are not added to the W-2 of the S corp shareholder.

[Gretel]

Brad

I try to find it again, it was well before sec. 13 in an odd place.

[Gretel]

Brad

Found it. Pg. 8-7, Insurance, Workers' comp.

"If an S corp. pays WC premiums for its 2% S/H employees, it generally can deduct them, but must also include them in the S/H wages."

[veritas]

Found it. Pg. 8-7, Insurance, Workers' comp.

"If an S corp. pays WC premiums for its 2% S/H employees, it generally can deduct them, but must also include them in the S/H wages."

I did not know that! Nearly all of our 2% ppl opt out of Workers Comp. because it is to expensive. I on the other hand do have it because it is very inexpensive for accountants. But I'm going to ignore it because it's a stupid rule.

[OldJack]

Found it. Pg. 8-7, Insurance, Workers' comp.

"If an S corp. pays WC premiums for its 2% S/H employees, it generally can deduct them, but must also include them in the S/H wages."

Not only does page 8-7 not make any sense on workers comp cost, its the same with a partnership. I guess its because workers comp is paid for possible personal injury which is not taxable when received.

[Brad Imsdahl]

Found it. Pg. 8-7, Insurance, Workers' comp.

"If an S corp. pays WC premiums for its 2% S/H employees, it generally can deduct them, but must also include them in the S/H wages."

I forgot all about that one. Sure enough it is in TTB.

IRS Pub 535, page 24 says the same thing:

"Workers’ compensation insurance set by
state law that covers any claims for bodily injuries
or job-related diseases suffered by
employees in your business, regardless of
fault."

"a. If a partnership pays workers' compensation
premiums for its partners, it generally
can deduct them as guaranteed payments to partners."

"b. If an S corporation pays workers' compensation
premiums for its 2% shareholder-employees,
it generally can deduct them, but must also include them
in the shareholder's wages."