Discussion:HSA and S corporations
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Discussion Forum Index --> Consumer Questions --> HSA and S corporations
Lhendricks92 (talk|edits) said: | 5 March 2007 |
| I am the sole employee-owner of an S corporation. My company has contributed $5450 to my family’s HSA for 2006, and I want to make sure I report everything correctly. Here's what I've done so far.
1120S Line 7 - contribution included in compensation to officers. W2 Box 12a, code W - contribution included So, at this point, the corporation has taken a deduction for the compensation expense, but the contribution was added to my personal income on my W2. On to my personal tax return to deduct it… Form 8889 – Lines 2 and 9 – What do I put here? If I put $0 on Line 2 (personal contribution) and $5450 (employer contribution) on Line 9, TurboTax doesn’t give me the desired adjustment to gross income on Line 25 of 1040. Of course, if I reverse this, TurboTax computes the deduction correctly. What should I do? 1) I don’t really want to override TurboTax if I don’t have to, 2) I want my deduction, and 3) I want to minimize my audit chances. Thanks in advance, Lee | |
| 5 March 2007 | |
| In this case, the employer contribution is zero since the amount was actually paid out of your taxable wages. | |
Lhendricks92 (talk|edits) said: | 6 March 2007 |
| Thanks for the response. I see, that makes sense. That's a HUGE help.
So, I should enter $5450 on Line 2 of Form 8889 (and thus Line 25 of 1040)? Also, can you verify I've handled my 1120S and W2 correctly? | |
| March 6, 2007 | |
| Box 12a, code W, is for employer contributions and never for employee contributions. This amount should not be included in your taxable or social security wages. There should be no deduction on your personal return, if the amount is listed on your W-2 form in Box 12a, code W. But there are certain fields you need to answer on Form 8889. I've discussed this in other HSA discussions. Click on HSA below to find them. | |
Lhendricks92 (talk|edits) said: | 6 March 2007 |
| As long as my company wrote a check to my HSA, wouldn't that qualify as an "employer" contribution?
Deback, your comments contradict this from the IRS bulletin concerning S corps: "However, if the requirements for the exclusion under section 3121(a)(2)(B) are satisfied, the S corporation’s contributions to an HSA of a 2-percent shareholder-employee are not wages subject to FICA tax, even though the amounts must be included in wages for income tax withholding purposes on the 2-percent shareholder-employee’s Form W-2, Wage and Tax Statement. The 2-percent shareholder-employee, if an eligible individual as defined in section 223(c)(1), is entitled under sections 223(a) and 62(a)(19) to deduct the amount of the contributions made to the 2-percent shareholder-employee’s HSA during the taxable year as an adjustment to gross income on his or her federal income tax return." | |
| 6 March 2007 | |
| Code W is for an employer contribution. Since it is properly included in your wages, it is not an employer contribution and should not be reported with Code W. | |
| March 6, 2007 | |
| Glmpllc - That's what I was getting at.
Lee - Here are some links to read: W-2 Form Instructions for Code W Notice 2004-2, Page 269 Notice 2004-50, Page 196 | |
Lhendricks92 (talk|edits) said: | 6 March 2007 |
| Thanks so much for all of your help.
OK, let me see me if I can digest all of this. Please comment. On my W2, Box 1 should include the contribution. However, because the contribution is not subject to FICA, Boxes 3 and 5 should NOT include the contribution. Box 12A should not have a Code W. I will need to amend the original (now incorrect) W2. Form 8889 will reflect a personal HSA contribution with no employer contribution. Correct? | |
Lhendricks92 (talk|edits) said: | 7 March 2007 |
| anybody? | |
Lhendricks92 (talk|edits) said: | 9 March 2007 |
| Now that's just cold. Point me to a bunch of publications, offer a few snippets of advice, and when I offer you my detailed interpretation of how to translate all of that information into ACTUAL line items on tax forms, no one can comment.
Thanks. 'ppreciate it. | |
| March 9, 2007 | |
| Employer and pretax HSA contributions are included on the W-2 in Box 12 with code W. I've already told you exactly where to enter all amounts. See my first response above. Click on the HSA link below to read other messages where I went into more detail about this. Remember, you are getting free advice from professionals who are very busy right now making their living. If you need more help, please consider hiring a tax professional in your area. | |
Lhendricks92 (talk|edits) said: | 9 March 2007 |
| I'll say it again. I'm a 2% shareholder-employee. Per Notice 2005-4, I'm assuming because 1) my company's contribution MUST be included in wages, 2) it should NOT appear in Box 12 with code W.
I've done my homework, now I just want clarification that my logic is correct. Anyone else care to comment? | |
| 9 March 2007 | |
| Lhendricks92, the answers you seek are above.
You don't know anyone named Fred in upstate New York, do you? | |
| March 9, 2007 | |
| Q-3. What is the tax treatment of an S corporation’s contributions to the HSA of a 2-percent shareholder (as defined in section 1372(b)) who is also an employee (2-percent shareholder-employee) in consideration for services rendered to the S corporation?
A-3. Under section 1372, for purposes of applying the provisions of Subtitle A that relate to fringe benefits, an S corporation is treated as a partnership, and any 2-percent shareholder of the S corporation is treated as a partner of such partnership. Therefore, contributions by an S corporation to an HSA of a 2-percent shareholder-employee in consideration for services rendered are treated as guaranteed payments under section 707(c). Accordingly, the contributions are deductible by the S corporation under section 162 (if the requirements of that section are satisfied (taking into account the rules of section 263)) and are includible in the 2-percent shareholder-employee’s gross income. In addition, the 2-percent shareholder-employee is not entitled to exclude the contribution from gross income under section 106(d). See Rev. Rul. 91-26. For employment tax purposes, when contributions are made by an S corporation to an HSA of a 2-percent shareholder-employee, the 2-percent shareholder-employee is treated as an employee subject to Federal Insurance Contributions Act (FICA) tax and not as an individual subject to Self-Employment Contributions Act (SECA) tax. (See Announcement 92-16, 1992-5 I.R.B. 53, clarifying the FICA (Social Security and Medicare) tax treatment of accident and health premiums paid by an S corporation on behalf of a 2-percent shareholder-employee.) However, if the requirements for the exclusion under section 3121(a)(2)(B) are satisfied, the S corporation’s contributions to an HSA of a 2-percent shareholder-employee are not wages subject to FICA tax, even though the amounts must be included in wages for income tax withholding purposes on the 2-percent shareholder-employee’s Form W-2, Wage and Tax Statement. The 2-percent shareholder-employee, if an eligible individual as defined in section 223(c)(1), is entitled under sections 223(a) and 62(a)(19) to deduct the amount of the contributions made to the 2-percent shareholder-employee’s HSA during the taxable year as an adjustment to gross income on his or her federal income tax return. See Notice 2004-2, Q&A 19, 2004-2 I.R.B. 269, for employment tax rules for employer contributions to HSAs of employees other than 2-percent shareholder-employees. | |
