Discussion:Fun with SEHI

Premiums for health insurance paid by an S corporation on behalf of a more than 2% shareholder, to the extent of W-2 wages received from the S corporation, are deductible on the corporate return, but the shareholder must include the amount of the premiums in income on the shareholder's Form 1040. (Constructive rules of ownership apply.) The income should be included on the shareholder's Form W-2 as taxable wages. Those wages, though, are not subject to FICA or FUTA as regular wages are. If the amount of the premium is not included on the shareholder's Form W-2, it should be reported as Other Income on Line 21 of the shareholder's Form 1040.

By Jacki Morin, Revenue Agent Bangor, Maine [1]

Any payroll deduction that pays the insurance, correctly handled, is not provided by the Corporation, therefore, the rules you mention do not apply to that portion of the insurance cost. If, the Corporation pays a portion of the insurance up and beyond the amount of the payroll withholding than that portion is what is subject to the rules.

not pay the preminum.

If the Corp takes money from son-in-law for HI and in turn pays the premium how does that reimburse the son-in-law for the amount he paid?

My advise is hire a professional to take care of this if you don't know how.

S Corporation are treated as partnerships for this purpose.

The amount paid by, whomever, is not paid by the partnership. Payroll withholdings per the first post are not amounts paid by the partnership. Any excess amount paid above the $40 paid by whomever would be SEHI.

Cotler v. Commissioner, T.C. Memo. 2007-283 (9/19/07),

"The court agreed that Richard reimbursed the firm by subtracting the amounts of the insurance premiums from his loan to the firm. The firm was nothing more than a conduit with respect to its payment of the disability premiums, the court concluded."

In order for the $$ for the 50% s/holders to remain equal, the difference (amount greater than the equal share) would need to be w/held from the married w/kids s/holders wages. This way, no loan from/to - we have a thing about those phantom loans.... No different than if 1 s/h claimed M-0 and the other claimed S-9 for w/holdings on taxes. What do you think?

Insurance premium for single = $5,000 per year

Ins. prem. for family = $5,500 per year

reimbursed portion ($500)

net deduction to corp = $10,000

If that is correct, then the amount that goes on the W2 would be $10,000, not the full amount.

Now, I think the question remains, is there a way for this married shareholder to deduct the $500 as SEHI? Is my understanding correct, Dennis?

Credit Insurance Expense $500.00

Cr insurance means your SEHI is determined not by what you pay, but what your partner pays. Suppose, as Michael suggests, instead of married partner putting in, single partner takes out. GP for each is $10K.

My aje would be:

dr - Health insurance $10k, (married partner)

    Health insurance $5k  (single partner)
    GP $5k - (single partner)

cr - cash - $20k with $5k cash going direct to the single partner and the other $15 k going to the insurance companies.

Single partner deducts $5k SEHI and the married partner deducts $10 SEHI - both have $10 in reportable income.

Are the two sole proprietors going to "balance" the amount of expense for the insurance like your partnership? I would guess not, therefore, the definition would not happen.

I do not see why your wanting to credit insurance expense. Credit cash to pay for the insurance, debit insurance (partners)/GP for the cash out to pay the insurance and GP. The insurance expense will not be reported as insurance expense on the 1065 but as a form of GP to the partner which will be the 1065 expense of the partnership.

Edit - we're talking the same thing right??

One thing that is unfortunate when reporting this as a partner through a partnership or a sole prop who files a Schedule C is that this SEHI is subject to SE tax where if reported as wages in an S-Corp is not subject to FICA which is the equivalent of SE tax.