Discussion:S-Corp/Health Insurance/classes of employees
From TaxAlmanac, A Free Online Resource
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> S-Corp/Health Insurance/classes of employees
Michaelstar (talk|edits) said: | 26 June 2006 |
Michaelstar (talk|edits) said: | 26 June 2006 |
| My question as it relates to my topic: Can the >2% S-Corp shareholders pay for health insurance for the shareholders and report that as wages with $00 due back to the corp and at the same time pay for health insurance for only those employees that fully reimburse the corp through p/r withholding for health insurance on the individual employees behalf.
Is this allowed by treating these as different classes of employees? | |
| 27 June 2006 | |
| No, but you can accomplish what you want through a salary reduction plan. | |
Michaelstar (talk|edits) said: | 27 June 2006 |
| Dennis - if I have the question, I know others must as well. A salary reduction plan??? Also, hoping Riley2 logs in and adds his wisdom. | |
| 27 June 2006 | |
| Health Insurance costs $5,000. Employee earns $36,000. Employee agrees to work for $31,000 in exhange for company paid health. Requires a formally written plan. | |
Michaelstar (talk|edits) said: | 27 June 2006 |
| Okay, but as a >2% s/holder, that $5,000 must still be reported as wages not subject to fica/medicare/futa. So if the corp is not paying for health insurance for anyone else, unless the employee (they have 15 employees who are not s/holders) fully reimburses the S-Corp then can this formal written plan need to be structured in such a way to make it work? | |
| 27 June 2006 | |
| Under a salary reduction plan all employees get company paid health as a fringe benefit. There is no reimbursement. Employees are effectively paying health insurance premiums with pre-tax dollars. Corp saves on payroll taxes. Premiums paid for >2% shareholder reported as wages. | |
Michaelstar (talk|edits) said: | 27 June 2006 |
| Thank you Dennis. Unfortunately, they do not believe that they can afford the health insurance for all of the employees here in CA so that is why the employess must pay for it themselves. Actually with the cost of health insurance, I am sure this is common in small companies. I guess in this case, because the s/holder is fully paying for the insurance and it is not a company paid fringe benefit, I can not report the insurance $$ as just wages not subject to fica/medicare/futa. The futa part is immaterial - who makes less the $7,000 in wages and works full time. | |
| 27 June 2006 | |
| Michaelstar you have missed the point. Total dollars spent by Corp on wages, payroll taxes and health insurance premiums goes down under a salary reduction plan. Employees are still paying the premiums--it's just that they are agreeing to pay them by earning less. | |
Michaelstar (talk|edits) said: | 27 June 2006 |
| Dennis - your right - I did miss that point - I do appreciate your staying with this and all the great help your are providing. All of the employees are hourly. This is a retail business. Not all of the employees elect to pay for their health insurance for various reasons. The "all employees" part of one of your prior post under a salary reduction plan could turn out to be a real problem. Do you have a link of some kind that I can access and read/study up on a salary reduction plan? | |
| 27 June 2006 | |
| Unfortunately no. Each employee has the option of either participating or not -- Thus all employees are covered by the plan.
In your case, only the employees who are currently paying for premiums would elect. | |
| 28 June 2006 | |
| I think I'm missing the point, too. >2% S Corp shareholders are not allowed to participate in a Sec 125 plan. Is there something else that you're talking about? | |
| 28 June 2006 | |
| My understanding is that the company health plan is integrated with but is independent of Section 125. This allows shareholders to take advantage of the above the line deduction for company paid premiums includable in wages. In any event, with reference to the original post, since the addition to wages represents the payment of premiums the journal entries wash. (credit cash, debit premiums paid; credit premiums paid, debit gross wages; ) There is no second class of employee to worry about. The 125 plan will benefit the company, but is not necessary. | |
Michaelstar (talk|edits) said: | 29 June 2006 |
| Dennis, let me add and maybe clarify my original post. Both the s/h and employees are paid for their labors as employees (hourly/salary). That compensation has no relationship to health insurance. Based on the monthly premiums (which change mid year as with all of us) there is an equal amount withheld bimonthly to equal the premiums paid. They do not have a sec 125 plan. I was not thinking a "salary reduction" plan was a sec 125 plan. I certainly know and promote sec 125 plans for those clients who will pay for the plan to be administered. New knowledge from this post - >2% s/holders can not pay for health insurance via a 125 plan! Small companies like the one I am talking about do not have someone "inside" to administer a 125 plan and up to now, I do not want to babysit 125 plans for clients because of the time and potential liability. To intergrate a health plan with this seems complicated. Still unclear up to this point how a "salary reduction" plan works if it is independent of a Sec 125 plan. PS - Thank you everybody for all of you input on this post. | |
| 29 June 2006 | |
| A 125 Plan for Health Insurance only is pretty basic...not much to administer as long as they offer it to everyone. It gets more complicated if they offer Dependant Care too.
Then the Corp pays for everyones health insurance and the 125Plan recovers monies from the employees. Since owners aren;t eligible, their portion is added to their W-2 and offset by a health insurance deduction (reimbursing the company) with a no-check entry. | |
| 2 November 2006 | |
| It is my understanding that the health insurance premimums under the section 125 plan are pre tax and pre fica. The exception is for the >2% owners they are only pre tax and not pre fica. The cost to have a Third Party Administrator is minimal. AFLAC offers this service. The Premimum only plan is free. The Health Reimbursement and premimum plan cost about $200 per year. The employers FICA savings should cover that minimal annual cost.
Hope that helps? AL | |
| 3 November 2006 | |
| >2% shareholders cannot participate in a Section 125 plan. | |
To join in on this discussion, you must first
log in.
