S-Corp. Health Ins. vs HRA

[Gretel]

Just need confirmation as to handle on W-2 after S-Corp. has set up HRA for health insurance.

Before (S-Corp. paid Health Insurance): W-2 box 1 $44,000 (incl. $4,000 for insurance)
box 3&5 $40,000

After (HRA set up): nothing changes on W-2 but net pay will increase by $4,000.

Or S-Corp. will write a check to shareholder with same result on W-2.

I don't know why this is so confusing to me and hope everyone agrees with my approach.

[veritas]

For 2% Shareholder/employees

Did the corporation pay the premium? If yes include in box 1 of W2. Also notate in box 14.

I saw HRA did you mean HSA?

Did the company pay into the HSA Savings Account? If yes include in Box 1 And box 12 with code W.

[Gretel]

Thanks Veritas. Yes, I meant HRA = Health Reimbursement Arangement.

Corporation will reimburse employees for medical expenses including insurance, in this case we have only 2% shareholders.

All the corp.is doing differently is to pay shareholders instead insurance company, right?

[veritas]

I question the position

that using a Health Reimbursement Account is a way around the health insurance problem.

In a cafeteria plan a 2% shareholder/employee is required to include in income deferrals for medical expenses for income tax purposes although the deferrals are not subject to employments taxes.

The reasoning behind this is that S-Corporations are supposed to be taxed the same as a partnership. So can a partnership have a health reimbursement plan for partners which is not included as guarantee payments? I don't know offhand.

[Gretel]

that using a Health Reimbursement Account is a way around the health insurance problem.

In a cafeteria plan a 2% shareholder/employee is required to include in income deferrals for medical expenses for income tax purposes although the deferrals are not subject to employments taxes.

The reasoning behind this is that S-Corporations are supposed to be taxed the same as a partnership. So can a partnership have a health reimbursement plan for partners which is not included as guarantee payments? I don't know offhand.

It appears that I didn't make myself clear. Yes, the medical benefit to the shareholder will be included in box 1 same as if corporation paid for insurance. Only difference is that insurance is now paid by shareholder instead by corporation. So shareholder needs to be reimbursed by corporation for insurance.

Just bringing into writing what was just in my head before make me pretty confident that I know what to do. Please do not anyone tell me now that I am wrong after all.