Discussion Archives:Definitions of earned income

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Discussion Forum Index --> Advanced Tax Questions --> Definitions of earned income


Discussion Forum Index --> Tax Questions --> Definitions of earned income

Howardlcpa (talk|edits) said:

24 October 2007
Dear Group,

With respect to the deduction for self-employed health insurance premiums, I understand that an S corporation shareholder's earned income is the shareholder-employee's FICA taxable wages per the W-2 (IRC 162(l)(5)(A). However, for purposes of the earned income credit, I understand that earned income includes wages per line 7 of Form 1040. Consequently, the health insurance premium being reported to the shareholder-employee is considered earned income for earned income credit purposes but not for self-employed health insurance deduction purposes. Is this correct? It doesn't make sense. However, I haven't been able to find any definitions in the code to lead me to believe otherwise. Any thoughts from the group are appreciated. Thank you in advance to any and all who reply.

TheTinCook (talk|edits) said:

24 October 2007
Sec. 32(c)(2)(A) seems pretty clear to me.

Sec. 162(l)(5)(A) is limited to that subsection.

Southparkcpa (talk|edits) said:

25 October 2007
Howard

I may be mistaken but the assume a shareholder has health premiums paid on his behalf. NO other wages. Say the amount is $5,000. Then $5,000 will appear on the W2 and then go to on line 7 AND as a deduction FOR AGI. This is how I believe it is meant to be done. In effect, no income tax is paid but SS tax is paid.

Okie1tax (talk|edits) said:

25 October 2007
I think the question is really about "self-employed health insurance". BUT, all information is for an employee, not for sole propriator. Also, employer apparently is paying the insurance, so where does the "self employed" come in?

TheTinCook (talk|edits) said:

25 October 2007
It's a special case for 2% shareholder-employees in their own S-Corps.

Okie1tax (talk|edits) said:

25 October 2007
http://www.irs.gov/businesses/small/article/0,,id=157049,00.html

Maybe this will help answer.

Blrgcpa (talk|edits) said:

25 October 2007
The 2% owner of an s corp pays no tax on health ins. It is not subject to fica, medicare tx, fit or sit. It is reported in box 1 and 14 of the w-2.

I had an instance where the owner only took health ins. The irs questioned it, but it was resolved with a letter.

The 2 % owner in this instance has health ins treated as a partner in a partnership would be treated.

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