Discussion:S Corp health ins reim per discriminatory plan
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Discussion Forum Index --> Advanced Tax Questions --> S Corp health ins reim per discriminatory plan
Discussion Forum Index --> Tax Questions --> S Corp health ins reim per discriminatory plan
Shellyoffice (talk|edits) said: | 23 October 2008 |
| Lots of info on S corp health insurance, a plan, and how to report on 1120S, K-1, W-2 and 1040 above the line, but can't find anything definite on discrimination: this scenario.
If the >2% sh/owner wants to only reim himself for his own health insurance premiums and not offer this benefit to other employees (offer reim to only the class of "managerial empees" which he is the only one). Can a plan do this? | |
| October 23, 2008 | |
| Yes, from what I've been told, as long as it's not 100% reimbursement. Same for employees. He can pick and choose who to do it with if he keeps it a 90% reimbursement or less. If he pays it all, he cannot discriminate. | |
| 23 October 2008 | |
| An employer can discriminate as long as it is not a self-insured plan.
With respect to S-Corp's, if you discriminate then the health insurance that is added to >2% shareholder's compensation is now subject to FICA. | |
RoyDaleOne (talk|edits) said: | 24 October 2008 |
| Is that not true, Wiles, whether, there discrimination or not? That is health insurance gets added to the W2 for a greater then 2% shareholder in an S Corporation. | |
| 25 October 2008 | |
| Agree with Wiles. If the plan does not satisfy the "classes of employees" requirements of Sec. 3121, the premiums are then added to the shareholder's FICA wages. Example, a plan that by its terms covers only shareholders would not qualify for the FICA exemption. However, a plan that covers all "managerial employees" covers a specific class of employees and would presumably qualify for the Sec. 3121 FICA exemption. | |
RoyDaleOne (talk|edits) said: | 25 October 2008 |
| Code Section 1372 provides for the purposes of employee fringe benefit rules, an S Corporation is treated as a partnership. Any person who is a 2 percent shareholder under the rules of Code Section 318, of such S Corporation, is treated as a partner of a partnership for the purpose of applying the employee fringe rules. Shareholders who are also employees of an S Corporation and are not a 2 percent shareholder are treated in the same manner as non-shareholders.
If the shareholder-employee is provided accident and health insurance for services rendered to the S Corporation the premiums for such insurance are treated like guaranteed payments under Code Section 707(c). The premiums are deductible under by the S Corpraortion under Code Section 162, and includible in the shareholders income under Code Section 61. I don't see how Section 3121 can turn "guaranteed payments" into wages, if, I am wrong tell me so. | |
| 26 October 2008 | |
| Shellyoffice, why can't the shareholder pay for the insurance directly as an individual? He should still be allowed the above-the-line deduction for the self-employed and no discrimination issue would arise. | |
| 27 October 2008 | |
| Roy, Internal Revenue Code § 1372 affects only Subtitle A issues (income taxes). FICA is a Subtitle C issue (employment taxes).
Thus, FICA treatment of discriminatory health plans is governed solely by Internal Revenue Code § 3121(a)(2) which provides that employment based discrimination is ok, but discrimination on the basis of share ownership in not allowed. | |
| October 27, 2008 | |
| Thanks for that clarification Riley. I think that should be highlighted somewhere, as the two often seem to be confused. | |
RoyDaleOne (talk|edits) said: | 27 October 2008 |
| Well, I still have the same problem in my mind, as I had with the "reasoning" of Notice 2008-1.
There, is no logical reasoning of law in Notice 2008-1, except to shoehorn in the "facts" of Notice 2008-1 with intended results, for the conclusions reached. I am looking for the legal reason, that justifies the positions taken in the notice. | |
Gmacdon167 (talk|edits) said: | 27 October 2008 |
| In response to Jbcpa-
Is this not the reason for Notice 2008-1? To say specifically that the taxpayer cannot do what you are suggesting? I'm not being critical as I'm just as confused regarding the whole notice 2008-1. | |
Gmacdon167 (talk|edits) said: | 27 October 2008 |
| If he/she is the only one receiving reimbursement then is it subject to FICA or not? | |
Gmacdon167 (talk|edits) said: | 27 October 2008 |
| Thank you JR. That's what I thought and then all the discussion of FICA, discrimination, 100% reimbursement vs 90% reimbursement, etc. crept in and threw me. | |
| 27 October 2008 | |
| GMAC, if there is a written plan that provides coverage to all employees or specific classes of employees, then the FICA tax will not apply. Otherwise, FICA/Medicare tax will apply. | |
