Life insurance and S corps

[winnie]

For my >2% shareholders who have their S corp pay life insurance, I have been treating this as a non-deductible item that reduces equity on M-2. I just came across something that made me think I should have been adding the cost of this insurance to their W-2, subject to ss and medicare.

What do you think?

[veritas]

depends

Who owns the policy?

Term insurance or universal life?

Group life?

need more info

[ChEAr$]

Agree

For my >2% shareholders who have their S corp pay life insurance, I have been treating this as a non-deductible item that reduces equity on M-2. I just came across something that made me think I should have been adding the cost of this insurance to their W-2, subject to ss and medicare.

What do you think?

That's the way I do it.

[winnie]

Thanks for response.

Term life

Considered group term (per Kleinrock's federal tax expert: less than 10 employees, given to all FT employees qualifies for group term).

Need any more info?

[veritas]

Winnie

It's taxable wages to the >2% employees. I am unsure on the Fica taxes.

It's also wages for relatives working for the corporation.

[winnie]

for employees: subject to Fica and medicare

I copied this from the instructions for the W-2:
Group-term life insurance. If you paid for group-term life
insurance over $50,000 for an employee or a former employee, you must report the taxable cost of excess coverage, determined by using the table in section 2 of Pub.
15-B, in boxes 1, 3, and 5 of Form W-2. Also, show the
amount in box 12 with code C. For employees, you must
withhold social security and Medicare taxes, but not federal income tax.

That is pretty clear for employees, but for 2% shareholders, can I still just put it through as non-deductible and reduce equity in M-2 or do I have to add it to their W-2, just like an employee?

Thanks for hanging with me on this one.

[veritas]

You are talking about another issue

2% shareholders are not employees for group life insurance tax free benefit purposes. They are to be treated the same as a partner in partnership for this benefit . In other words all premiums paid for these individuals are taxable wages.


Your reference is to premiums paid in excess of 50,000 which are taxable to employees. I think we used to call it PS-58.