S/E Health Insurance Deduction-S Corp.

[jmc]

Regarding the deduction limitation from the new law, can the following scenario work?

An S corp. hires single shareholder/employee, wife/employee, and other employees. If S corp. pays the wife/employee for health insurance under her own name covering herself, shareholder/employee. and her dependents, it is regarded as fringe benefits. Thus, it is deductible by S Corp. and not included as income/wage of the employees.

[veritas]

It is a fringe benefit

and should be included as taxable wages.

[Brad Imsdahl]

TTB, page 13-27, "A more than 2% shareholder of an S corporation also includes members of the shareholder's family, including a spouse, children, grandchildren, and parents. (IRC Section 318)"

That means even if an adult son who no longer lives with his father, but is employed by his single shareholder father in the father's S corporation, the son is treated as a more than 2% shareholder of that S corporation, even though the son owns no stock. Same is true for the spouse, grand kids and parents of the shareholder. All would have to have their health insurance benefits added to their W-2 wages.

[jmc]

Thank you so much for clarification. TTB is a great reference book.