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Discussion Forum Index --> Consumer Questions --> S Corp s/h health insurance, paid by s/h
TomKiely (talk|edits) said:
| 10 January 2006
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| Can a S corp shareholder (33%) who pays his oun health insurance deduct it on his 1040?
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LJACPA (talk|edits) said:
| 10 January 2006
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| As long as this is reported correctly (i.e. wages on W-2, etc.), yes. LJACPA 09:30, 10 January 2006 (CST)
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Riley2 (talk|edits) said:
| 11 January 2006
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| Yes, the shareholder may pay and deduct the premiums at the personal level. The deduction is limited to the amount of his wages from his S Corporation.
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Gameday (talk|edits) said:
| 6 February 2006
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| PREMIUMS OF A 2% SHAREHOLDER CAN BE DEDUCTED ON THEIR 1040 . BUT WHERE? ON PAGE 1 OF THE 1040 OR SCHEDULE A OF THE 1040.
IS THE PAYMENT SUBJECT TO MEDICARE AND FICA TAX
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Riley2 (talk|edits) said:
| 7 February 2006
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| If the client is an employee of the S corp and not eligible for subsidized health insurance through any other employer or himself or his spouse, you should be able to deduct on page 1 of the 1040. The payment by the corporation will not be subject to FICA or Medicare tax as long as there is a "plan or system".
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The following posts are being transferred to this related discussion. They were in the "very long discussion" Bean mentioned above, and are posts from non-taxpros or the related responses to those posts, and are being moved out of that other discussion as a result:
Eweinstein (talk|edits) said:
| 15 March 2006
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| I have a question about what Bean said: "Of course, if the sharedholder does not have wages, then deduction on page 1 is NOT allowed; he/she would have to itemize." I have had an s Corp for years but it had been dormant. Last year I did business through it but did not take any money out so I did not file a W-2. I did pay my HI premiums through the corp. Am I to understand that I have to itemize the cost of the HI on my 1040? And that it doe snot count as an expense of the S-Corp?
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JR1 (talk|edits) said:
| 15 March 2006
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| Cannot take the HI deduction without wages...
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Dennis (talk|edits) said:
| 15 March 2006
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| Health insurance payments for shareholder are wages. You can manage to get the deduction, but requires a lot of paper. 941c..w-2&3c amended 1120S. Lord, they had good discussions before tax season. As far as the payroll tax question is concerned, my take would be a plan that basically says to employees you can have health insurance if you pay for it yourself with after tax dollars is by definition non-discriminatory.
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Bean (talk|edits) said:
| 16 March 2006
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| Eweinstein -- S Corp must have wages (via W-2) in order to pay 2% or greater shareholder health insur and must include that part as wages, but NOT subject to FICA, only withhold federal taxes. The S corp may then deduct wages on the 1120S. The shareholder is allowed a deduction for this amount as an adjustment to income on Line 29 Form 1040. 100% of the cost is deductible.
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Randian (talk|edits) said:
| 9 April 2006
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| We all know the SEHI amounts are subject to withholding, which is a bummer as it's a non-cash item. Since it's an above the line deduction, is there any reason not to bump up my W4 exemptions to compensate? I was also thinking about the account ownership issue: why not show payments you make on a personal HI policy as Loans From Shareholders on the corporate books. That way the expense will be properly reflected as an expense of the corporation, and payments back to you become non-taxable payments of principal.
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Lfreeman (talk|edits) said:
| 27 November 2006
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| This discussion has been extremely helpful to me in trying to determine my situation as a sole shareholder S corp. I have an additional question. Would long term care insurance be considered part of the regular health insurance to be included in wages? From what I can find, this is usually deduted on schedule A as medical expense.
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Mtmckeecpa (talk|edits) said:
| 28 November 2006
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| Lfree,
The way I understand LTC premiums for >2% S shareholder is the same treatment as accident and health insurance premiums. I think you would get a deduction above the line subject to the LTC premium limitations.
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Ufeiner (talk|edits) said:
| 5 January 2007
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| How about this idea: I am 100% shareholder of an S Corp. My wife and I are both employees. I have a group HI plan for the corp under which only my wife is covered. My wife, in turn, adds me as a dependent on her plan. Therefore the corp takes the entire deduction, no mention on my W-2. Would the IRS allow this, considering that my wife's dependent happens to be me, the 100% shareholder?
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Jdugancpa (talk|edits) said:
| 5 January 2007
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| Sorry, no deal. Spouse is considered a stockholder by rules of attribution. Therefore she falls under the same restrictions as you do. Med ins paid by S corp on behalf of s/h must be treated as additional compensation and deducted an "above the line" deduction on Form 1040, page 1.
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Randian (talk|edits) said:
| 6 January 2007
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| As I understand it, you aren't eligible for an HSA if your 105 plan pays for anything other than vision, dental, and preventive care. Therefore if you use the aforementioned 105 "loophole" in order to get an above-the-line deduction for insurance premiums, you can't have an HSA, right?
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LJACPA (talk|edits) said:
| 6 January 2007
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| I don't think you are correct, Randian. I have contributed to several other discussions re: HRA/Sec 105 plans in regards to >2% shareholders. The company setting up/promoting/administering these plans states that this is allowed and I have, as I've mentioned elsewhere, a document that provides a thorough example of how this works. I'd love to get it to someone (if I knew how, don't know how or if I can attach it here)and get others opinions on this. Anyway, the qualified medical costs are not limited to the three you mentioned.
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Randian (talk|edits) said:
| 6 January 2007
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| LJACPA, I think you misunderstood my question. As I understand revenue ruling 2004-45, if you use an HRA to pay your medical insurance premiums you aren't eligible for a Health Savings Account (HSA), because general health insurance premiums aren't "permitted insurance". Also as I understand it, a 2% shareholder can't get above-the-line treatment of deductible and expense reimbursements from an HRA because that line on the 1040 only applies to insurance premiums, not any health care costs. To cover that gap an HSA would be real nice to have since 2% shareholders are otherwise eligible for them.
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Ufeiner (talk|edits) said:
| 8 January 2007
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| Thanks for the input, Jdugancpa. I thought it was worth a shot but I see your point. So we'll both do the W-2 box 1 and take the deduction on our 1040. We get the deduction either way.
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Thinkcomp (talk|edits) said:
| 26 January 2007
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| I have a new twist on this topic, I'm afraid. I am a >2% S Corporation owner/shareholder, and I started in with health insurance in 2004, much to my dismay. It's a group plan in my company's name, so the individual/group name debate at least is all taken care of: my company cuts checks to the health insurance company every month for the full value of the monthly premium. My tax returns from 2004 on are almost certainly wrong, though, due to the general confusion as described above. The fundamental question I have is this: if I want to split the cost of health insurance between the company and myself personally 50%/50%, just because it's so expensive and I think it's fair that way, can I (A) simply pay myself my monthly gross salary minus 50% of my monthly health care premium (in other words, deduct my personal share of the premium pre-tax, even if this is not technically a "cafeteria plan"), (B) report only the company's 50% share of the premium as wages on my 941 returns and W-2, and (C) take 100% of the SE Health Care deduction on my 1040, since it doesn't matter who pays which part of the premium for the purposes of the deduction? I have called the IRS about this probably six times over the past three years, and haven't gotten a straight answer yet.
Thank you!
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JR1 (talk|edits) said:
| January 26, 2007
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| C, and leave it off the corp, the deduction passes thru to you. Consider a Sec. 105 plan in light of IRS' move against S corp shareholders on this.
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Thinkcomp (talk|edits) said:
| 26 January 2007
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| Hello... To clarify, I've already been doing (A), (B) and (C) for years, as I was told that I could have a Section 125 plan by my former payroll company. Now I don't know if I should report 50% of my health care premium as wages, or 100% as wages. I've been deducting 50% from my wages pre-tax, meaning that I'm effectively splitting the cost.
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LJACPA (talk|edits) said:
| 27 January 2007
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| Thinkcomp - a >2% shareholder/employee is not considered an employee for Section 125 purposes. i.e. cannot participate in a 125 plan.
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Djb pss (talk|edits) said:
| 10 February 2007
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| I'm a 100% shareholder of an s-corp which paid the premiums for the health plan... I have included the premiums in my W-2 box 1 and box 14. Do I also have to include it somewhere on the k-1? I realize that the overall business income (line 1 of k-1) is already reduced by the related expense, but I'm wondering if I need to mention it separately, perhaps on line 12 of k-1?
The main reason I ask is that, on the "Self-Employed Health Insurance Deduction Worksheet" for form 1040, line 1 includes the sentence "This amount should be entered on schedule C, schedule F, schedule K-1(Form 1065), or schedule K-1(Form 1120S)". Since the K-1/1120S is the only one that is applicable to me, I'm wondering where I would put it. Line 12 of K-1 seems the only reasonable location, but do I really need to include it at all?
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Natalie (talk|edits) said:
| February 10, 2007
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| I'm looking at that worksheet, and I do not see where it includes the sentence you include above, Djb. In any case, no, you do not report the amount on the K-1. It gets included in the W2s and then deducted on line 29 of the 1040. Some people do report the amount on the K-1, however, in instances where it was not correctly reported on the W2s.
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Djb pss (talk|edits) said:
| 10 February 2007
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| Thanks Natalie - it must be the software I'm using (TaxAct) that shows it that way. When I look at the worksheet in the "official" 1040 instructions, that sentence is not there.
In any case, thanks for putting my mind at ease.
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Jnosm (talk|edits) said:
| 1 August 2007
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| Here's a twist - My wife is 50% shareholder in a SubS. The Sub S has a non discriminatory "Plan" whereby her partner receives paid HI (along with other pay)...all treated pretty much as outlined here. There are no other "employees". My wife is included in my (spouse) policy under my employer's partially paid plan (C Corp). Can my wife's SCorp repay her the portion of my Company premium which is deducted from my pay (joint return filed) as her HI reimbursement subject to the same Sub S and W2 reporting requirements and 1040 deductability? I realize this bypasses the issues connected to policy ownership, but barring that unanswered item, is this allowed?
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PVVCPA (talk|edits) said:
| August 1, 2007
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| I do not believe it is allowable because your wife is able to participate in a plan subsidized by your employer.
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Reneruch (talk|edits) said:
| 29 January 2009
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| Do I have to include the Health Insurance in Box 1 also in Box 16 (State Wages)?
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Sukhvir (talk|edits) said:
| 17 August 2009
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Hello Everyone,
I have a situation. S corp paid health ins premium of behalf of 49% shareholder. It has not been shown as income in sharholder's W-2. How should I report it on shareholder's personal return.
I think I should report income on line 21 of 1040 and also report as deduction on Sch A line 21 under Employee Business Expen.
Thanks,
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JR1 (talk|edits) said:
| August 17, 2009
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| Nope. First off, you need to know what the corp did with it. Was it already deducted (in error, but common) as part of insurance expense? If so, stop, you're done. If not, was it booked to N/P-S/H? If no, then where the heck did it go?? If yes, then just deduct in the AGI adjustments area, not Sch. A. (In this case, corp profit is already too high, so you merely need the deduction on the 1040 to get to the correct answer.)
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Harry Boscoe (talk|edits) said:
| 17 August 2009
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| This seems a little unfair to the 51% shareholders. They're out of pocket for 51% of the health insurance premiums and have *nothing* to show for it except a tax deduction. Were they even consulted?
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Kevinh5 (talk|edits) said:
| 17 August 2009
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| the same with the water bill I pay. I only use the toilet 1/4 of the flushes. Those other times maybe aren't worth the benefit. I didn't go - why should I have to pay for the flush?
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Harry Boscoe (talk|edits) said:
| 17 August 2009
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| Trillium: Can you do some surgery on this discussion? I would like to try it, but my errors and omissions policy hasn't been renewed yet this year.
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Kevinh5 (talk|edits) said:
| 17 August 2009
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| my point being that maybe we all benefit when anyone flushes
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Blrgcpa (talk|edits) said:
| 17 August 2009
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| If possible ask the s corp to issue a corrected W-2.
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Riley2 (talk|edits) said:
| 18 August 2009
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| The premiums paid should be included on line 7 of the shareholder's Form 1040. The corporation should have deducted this on the officer's compensation line, but I wouldn't amend the corporate return if it was deducted on the employee benefits line.
Do not deduct this as an employee business expense. The page one deduction on Form 1040, however, is limited to FICA/wages from the S corporation.
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Note that Dblchai is referring to the note at the top of the original discussion, which referred readers to Notice 2008-1 and asked them to review more recent discussions rather than asking questions on that discussion.
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