How to Report
Health and accident insurance premiums paid on behalf of a greater than two percent S corporation shareholder-employee are deductible and reportable by the S corporation as wages for income tax withholding purposes on the shareholder-employee's Form W-2.
Taxation of Benefits
These benefits are not subject to Social Security or Medicare (FICA) or Unemployment (FUTA) taxes. The additional compensation is included in Box 1(Wages) of Form W-2, but would not be included in Box 3 and 5 of Form W-2.
A 2-percent shareholder-employee is eligible for a deduction in arrving at Adjusted Gross Income(AGI) for amounts paid during the year for medical care premiums if the medical care coverage is established by the S corporation and the shareholder meets the other self-employed medical insurance deduction requirements. A deduction used to arrive at AGI is referred to as an above-the line deduction.
The S corporation must establish the health insurance plan. The S corporation can pay the premiums or reimburse the sharholder-employee for premiums. The S corporation MUST properly report the payments on the shareholder-employee's W-2.
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For more information on how to properly account for and report health insurance premiums, please contact us.
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