2% S Corporation Shareholder Health Insurance

Let’s say that you own an S corporation and the company provides health insurance to you and your employees. The company gets a tax deduction and, in general, the employees get a non taxable fringe benefit.  That means that the cost of the insurance is not reported as taxable wages on the W-2.

But shareholders are a special case. Health insurance premiums paid on behalf of someone who owns more than 2% of the employer-S corporation are taxable for income tax purposes, but not for social security or Medicare.

For example, assume that a (greater than 2%) shareholder received a salary of $90,000 and the company paid health insurance premiums of $10,000 during the year.  The shareholder W-2 would show the following information:

Box 1 Wages, tips, other compensation $100,000

Box 3 Social security wages $90,000

Box 5 Medicare wages and tips $90,000

Also, the W-2 should include an entry in Box 14 “Other” for $10,000 with an appropriate description. This is particularly important for the shareholder, because he or she might be eligible for a deduction on their personal return.

These are general rules and are not applicable to all situations.  If you have questions, please contact our office.

 

For more information, contact our office.

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