Discussion:Life Insurance Premiums Deductible by S Corp?
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Discussion Forum Index --> Tax Questions --> Life Insurance Premiums Deductible by S Corp?
| 27 August 2006 | |
| Are life insurance premiums paid by the S Corportion on behalf of the more tha 2% shareholders deductible by the S Corporation? If the amounts have not been included in the shareholders' wages on the W-2, how would you handle this? Where would you include them on the individualss tax returns? | |
| 27 August 2006 | |
| If the shareholders are employees, the answer is yes, the amounts are deductible.
Fringe benefits paid to a more than 2% shareholder should be treated as wages to the extent that the amounts paid are not in excess of a reasonable salary. Wages that are inadvertently omitted from the W-2 form should nevertheless be reported on line 7 of the 1040. | |
| 27 August 2006 | |
| I just read an article on the IRS website which came out in May 2006 regarding S Corporation and medical insurance coverage. What I gather from that article is that 2 shareholders of an S Corp (both with more than 2% ownership)must include health insurance premiums paid by the S Corp on their behalf as wages. The S Corporation may deduct the premiums as compensation to the shareholders.
It seems that the shareholder's treatment of the medical insurance premiums depends upon whether or not the S/H has any other coverage available to them, either through another employer or a spouse. If there are no issues with this, then we look to see in whose name the insurance was purchased. If purchased under the shareholder's name, then they would be able to deduct as an itemized deduction subject to limitations. Otherwise, they could deduct these premiums as an above the line deduction. Do I understand this correctly? | |
| 27 August 2006 | |
| That's pretty much word for word what the IRS says, so yeah. It sounds to me like the employer is still going to be liable for its portion of FICA tax on the premiums reported as wages. Can someone confirm whether this is the case or not? | |
| 28 August 2006 | |
| Chase, your understanding of the article is correct. However, there is nothing in the law that supports the Service's position as presented in the article. Specifically, there is nothing in Sec. 162(l) that says a medical plan established for a particular business must be funded solely through the purchase of medical insurance policies issued under the name of the corporation. In fact, this IRS article is, as Dennis noted in other threads, in complete disagreement with the IRS's own Revenue Ruling 61-146.
JC, health insurance payments made on behalf of an S corporation shareholder pursuant to a "plan" that covers specific classes of employees or employees in general are exempt from FICA and Medicare taxation. See Sec. 3121(a)(2). This exclusion applies whether or not the policy is issued under the name of the corporation. There is nothing in the law that requires that the plan be in writing; however most practitioners recommend that the corporation issue a memo to all eligible employees explaining their right to insurance coverage or reimbursement for health insurance coverage. | |
Mtmckeecpa (talk|edits) said: | 28 August 2006 |
| In some cases, wouldn't it just be easier for the shareholder-employee to just directly pay their health premiums to the insurance company versus running the premium through the S Corp? | |
| 28 August 2006 | |
| Riley2: Does this mean that the S/H should still report the amount on W-2 wages but not have the FICA/Med withheld? Only have FIT and SIT withheld?
This topic is so confusing! | |
Mtmckeecpa (talk|edits) said: | 28 August 2006 |
| Chase,
This is from PPC's Payroll Tax Deskbook... S Corporations. Accident and health insurance premiums paid on behalf of more-than-2% S shareholder-employees are reported as additional compensation to the shareholders. The additional compensation is reported as wages on the shareholder-employee’s Form W-2... The compensation is subject to federal income tax withholding (FITW), computed using either regular withholding rates or the flat supplemental rate. However, the compensation is not taxable for FICA and FUTA tax purposes if the premium payments are made pursuant to a plan providing accident and health coverage [IRC Secs. 3121(a)(2) and 3306(b)(2); IRS Ann. 92-16]. | |
| 28 August 2006 | |
| Where can I get a copy of the Payroll Tax Deskbook? Which website? | |
Mtmckeecpa (talk|edits) said: | 28 August 2006 |
| http://ppc.thomson.com
I think it is a couple of hundred bucks or so. | |
| 29 August 2006 | |
| I think the original question has been overlooked with an issue that has been beaten to death on this site.
| |
| 9 October 2006 | |
| So if the life insurance is not deductible by the S Corp because the Corporation is beneficiary, it's not taxable wages to the employee, right? Thanks. | |
| 9 October 2006 | |
| If corporation is beneficiary, premiums are not taxable to employee and not deductible to corporation. If employee is beneficiary, premiums are deductible as compensation to the corporation and taxable wages to the employee. | |
| 6 September 2007 | |
| I want to make sure I am clear on the last comment regarding life insurance deductibility for an S-Corp. I have a three owners, 45 %, 45% and 10% in which the company paid life insurance for. They had more than one life insurance policy of which the company is not the beneficiary of any of the policies. Some of the policy premiums were paid through their payroll company so I assume that these have been included in W-2 wages and are fine to be deducted. The rest have been paid directly to the insurance companies so they wouldn't have been included in W-2 wages. Do I have two choices?
1. To reclassify these as distributions by the owners (one owner is not an employee so it appears that I would have to do this of her.) or 2. Deduct the life insurance premiums paid within the company and increase their wages on their personal returns when I prepare them. Is this correct? | |
