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Discussion Forum Index --> Consumer Questions --> Above the line deductions
Jc (talk|edits) said:
| 26 August 2006
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| What is the advantage of taking an above the line deduction for health insurance as an S-Corp owner by having the corp pay the premiums and report it as compensation on your W2? What's the difference between just putting it in your own name and itemizing the deduction on your personal return?
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Riley2 (talk|edits) said:
| 26 August 2006
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| Assuming that you would pay those premiums at the personal level from your wages from the S corporation, you miss an opportunity to claim a legitimate from your Social Security wages.
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Jc (talk|edits) said:
| 26 August 2006
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| Was I wrong in my thinking that social security tax was paid on wages pre-above the line deduction? It's paid on AGI?
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Riley2 (talk|edits) said:
| 27 August 2006
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| Sorry, I mistyped my previous answer. If the premiums are paid by the corporation under a "plan", the premiums effectively reduce the amount of the shareholder's income that is subject to Social Security taxes.
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Michaelstar (talk|edits) said:
| 27 August 2006
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| Also, to claim the health innsurance above the line - you will receive a dollar for dollar deduction against the income included on the W-2. If you were to include the health insurance as an itemized deducton, it most likely will be phased out at the 7.5% of agi function on schedule A and possible eliminate a large portion of the otherwise above the line deduction.
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Jdugancpa (talk|edits) said:
| 27 August 2006
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| Also, any deduction taken "above the line" reduces Adjusted Gross Income (AGI). Since many limitations are based on AGI, (e.g, the 7.5% medical expense, 2% for miscellaneous itemized deductions) any deduction that reduces AGI will be more beneficial than one that does not.
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Jc (talk|edits) said:
| 27 August 2006
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| But you have to report the dollars paid by the corp for the individual's insurance on his W2. So doesn't the fact that you can deduct it above the line just make it a net zero transaction? Or does that income on the W2 not contribute to SS wages while it can be deducted from SS wages? What about from federal/state wages?
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Jdugancpa (talk|edits) said:
| 28 August 2006
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| Yes, it is a net zero transaction. You receive medical benefits from the corp and it is included in taxable wages, but not in FICA wages, and then you take a deduction for in as an adjustment to gross income (i.e., "above the line"). So you received the medical benefits but did not pay any tax on them.
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Taxperson (talk|edits) said:
| 28 August 2006
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| JC, there is no deduction for FICA purposes. The benefit is simply never included in FICA or Medicare wages if the benefit is paid by the taxpayer's employer.
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