Discussion:"S" CORP SHAREHOLDER-MEDICAL INSURANCE
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Discussion Forum Index --> Tax Questions --> "S" CORP SHAREHOLDER-MEDICAL INSURANCE
| 20 September 2009 | |
| ONE OF MY CLIENT,AN 'S' CORP., SHARHOLDER'S MEDICAL INSURANCE IS NOT REPORTED ON HIS W-2.
SINCE THE W-2 DOES NOT INCLUDE MEDICAL INSURANCE AS WAGES HE CANNOT DEDUCT IT ABOVE THE LINE ON PAGE 1 OF 1040,BUT WILL HAVE TO USE SHCDL 'A'? IS THIS SUMMATION CORRECT. THANK YOU. | |
Harry Boscoe (talk|edits) said: | 20 September 2009 |
| Is this summation correct? Probably not, but it depends on how the S corporation is treating the premiums that it's paying for coverage of the shareholder (and maybe his family, too). | |
| 20 September 2009 | |
| THE corporation is not taking a expense deduction.It is being reported as additional info on k-1. | |
Harry Boscoe (talk|edits) said: | 20 September 2009 |
| If the shareholder doesn't include the premium in his taxable income and doesn't take a 'deemed' distribution for that amount, during the year, he can't deduct anything anywhere. Where is the premium expense being charged on the corporation's books? To what account...? | |
| 20 September 2009 | |
| The premium is being shown as Other Deduction on Schedule K line 12(d). | |
Harry Boscoe (talk|edits) said: | 20 September 2009 |
| Depending on how the corporation is accounting for the premium cost, it might not belong on Line 12d of Schedule K.
The corporation does have a double-entry set of books, doesn't it? What account is the cost of the insurance being charged to? Another preposition at the end of a sentence... | |
| 22 September 2009 | |
| Finally decided that the correct way is to report Medical Insurance on Schd."A" and advice the client to pick up as taxable wages for 2009, so that this issue does not arise. Mr. Harry thank you so much for your thoughtful insight. | |
| September 22, 2009 | |
| Well, you could be wrong. IF the corp did NOT deduct the insurance cost, then his income IS higher, and even tho' it's not on the W2 as it should be, and even tho' it violates Notice 2008-1, I'd probably still take it on page 1 of the 1040. That's the only proper way to zero him out. You could use Sch. A if you're really conservative, but it amounts to nothing in that case. And tell the acct. for the corp to read and follow the rules. Now if the corp. DID deduct it, then he has NO deduction of any kind. | |
RazorbackCPA (talk|edits) said: | 22 September 2009 |
| In the past (pre-Notice 2008-1) I have treated it as a nondeductible item on the S corporate tax return and claimed it on 1040 Page 1 as an above-the-line deduction.
Post Notice 2008-1, I am filing corrected 941s and W-2s for the clients who don't properly include it in their W-2, so I don't have to make the decision of whether to put it on Schedule A. | |
| 22 September 2009 | |
| JR1, you correct in in your statement but post Notice 2008-1, it may trigger preparer penalties if did the OLD way.Secondly the client's payroll is done by an Outside payroll service and even though the client has been informed, he does it his "OWN WAY". | |
| 22 September 2009 | |
| Since you do the s corp, you should notify the outside preparer. If at this late stage they don't want to make the correction. Then you should correct the W-2, 941 etc and charge the client for it. Next year he won't forget to do it properly.
Also do the 1120S correctly even if it means amending it. Then you can prepare the 1040 correctly. | |
| September 22, 2009 | |
| Good point QWE...disregarding that notice might not go well if he got picked. | |
Harry Boscoe (talk|edits) said: | 23 September 2009 |
| Is there a consensus among the professionals here as to whether IRS Notice 2008-1 offers *the* way that an S corporation *must* treat the health insurance premiums, or *a* way that it *can* treat them, to get the right answer, i.e., have the deduction somewhere and no FICA/Medicare tax on it...? | |
| September 23, 2009 | |
| It clearly is THE way that we MUST do it or risk disallowance. | |
| 23 September 2009 | |
| On October 16 I will have been in public accounting for 20 years. I can honestly say that for that entire time I have recorded S Corp shareholder health insurance as described in 2008-1. That was the conclusion the firm I worked for at the time came to, based upon what the rules said. To me, to argue about doing it any other way is a waste of time. 2008-1 is the only correct way to report this item. It's a dumbass way to do it, no doubt, but it is the way to do it. And face it, it's really not a burden either, any idiot can figure out how to get it on a W-2, you just have to think about it for a minute or two. Forget all of the arguments for doing it a different way, those are usually made because it was done wrong in the first place. There is no down side to doing it correctly.
My .02, I'll get down off the soap box now. | |
| September 23, 2009 | |
| And yet, it's a PITA while the lazy method got the exact same answer...by either: not deducting it on the corp and still deducting it on 1040 assuming there are wages, OR deducting it on the corp, assuming there are wages. What's the big deal? Just another shot over the bow at S corps is all. Nothing else makes a good reason. | |
| 24 September 2009 | |
| The lazy method skips over the fact this has been mandated to be treated as W-2 compensation and subject to payroll taxes. Therefore it's not the same exact answer for taxes due the government when all of it is netted out. After all the years when our S Corp shareholders didn't get a fair shake on being able to deduct their med insurance above the line, we finally got the 100% page one deduction. The gov't just won't give up the payroll taxes on those dollars. | |
Death&Taxes (talk|edits) said: | 24 September 2009 |
| But is the Health Insurance FICA wages? If not, are there payroll taxes to collect.
[written by someone who has one client in this situation!] | |
| September 24, 2009 | |
| Not subject, tho' Kathi, that's the point. No one cheated anyone out of anything on this, at least not since we got the 100% deduction several years back. | |
| 24 September 2009 | |
| I believe the wages are not subject to FICA and therefore no additional withholding is required. 2008-1 is all about income tax treatment. | |
| 24 September 2009 | |
| Well the egg is on my face - you are correct the med insurance is exempt from social security, medicare, FUTA etc. I haven't handled any S Corp payroll for a long time now and missed that point I guess. Thanks for the education!
Maybe the requirement to put it on the W-2 is more of a disclosure that the premiums are properly being run through the S Corp books. I recall reading a discussion that if you paid for your personal insurance off the books you got stuck with Sch A treatment and not page one of the 1040 status. The S Corp must pay for the insurance direct or reimburse the shareholder for personal payments made. It also avoids any problem with disproportionate distributions if premiums are not 100% the same for all the S Corp owners does it not? Kathi | |
| 24 September 2009 | |
| You have to remember that this all came about when you did not get 100% of the deduction, then it made sense to do it this way. Once the deduction became 100% it was just busy work. | |
