Tax Update Blog: Permalink
« Previous · Tax Update Blog Home · Next »
MORE ON S CORPORATION HEALTH INSURANCE
December 27, 2007
I discussed Notice 2008-1 with one of its authors this morning. The notice outlines the IRS views on how S corporations should deal with employer-provided health insurance for 2% shareholder-employees (background here).
The key to the ruling is this statement:
In order for the 2-pecent shareholder-employee to deduct the amount of the accident and health insurance premiums, the S corporation must report the accident and health insurance premiums paid or reimbursed as wages on the 2-percent shareholder-employee’s Form W-2 in that same year. In addition, the shareholder must report the premium payments or reimbursements from the S corporation as gross income on his or her Form 1040, U.S. Individual Income Tax Return.
The ruling didn't spell out how this would work in some situations. For example, many employers only cover part of the cost of employee health insurance, with the rest of the cost withheld from employee compensation -- on an after-tax basis, for shareholder employees. According to Mireille Khoury of the IRS, such employees will be able to deduct their contribution to the health insurance costs as long as the amount withheld to cover their share is included in the employees' "Box 1" income on Form W-2, and as long as the employer makes the actual remittance to the insurer. The same result will apply even if the entire premium amount is withheld from after-tax income for remittance by the employer.
Prior coverage here.
UPDATE here.
Bookmark: del.icio.us • Digg • reddit
Tax Updates
Subscribe to Tax Updates
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not neccesarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Search Tax Updates
Friends and Neighbors
Economics Nerds
Hard-Core Tax Nerds
Gigablogs
Insurance Folk
Goners
Legislation
Tax Update Data Feeds
Comments
Hi,
Still trying to understand this new notice and how it applies to my situation. A few questions:
1. I have an S corp setup which pays me & my wife a salary with all taxes taken out just as a normal paid employee. How does this new ruling affect how I should do my 2007 taxes as far as health insurance?
2. I had been using the www.association105.com program which their advertisd tax benefit is not to having to pay SS/Medicare taxes on all my healthcare expenses including out of pocket. Is the service still necessary now that this new notice is effect?
3. I'm setting up a new Quickbooks payroll service. With this new notice how should I set up the payroll to take maximum advantage of this new notice- is this to be filed under fringe benefits, S corp owners health insurance, etc? And is it pretax or after tax expense. I just want to make sure I get it right since its a initial setup.
4. With this new notice does it have a bearing on which is most tax advantageous- to have the S corp actually pay the health care expenses or have me pay out of my personal bank account? (It would seem like a better idea to pay from the S corp as this would be using money pre tax vs. paying from my personal account which I had already had taxes witheld from).
Sorry for so many questions but I've really enjoyed your informative posts and have learned much. And I'm sure alot of other people in the same position as myself would benefiti from having the above answered. Thanks in advance!
Posted by: John | January 1, 2008 4:51 PM