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Health Insurance & W-2 Reporting for Shareholders of S-Corporations
As the end of 2011 approaches, it is always a good idea to review the filing & reporting requirements for your company’s W-2s. The IRS requirements are constantly changing, so it is always good practice to consult with your CPA to make sure all new requirements are addressed.
One of the most common mistakes is the handling of insurance premiums related to shareholders of S-Corporations. If a greater than 2% shareholder in an S-Corporation has health or accident insurance premiums, these costs are reported as part of the shareholder’s/employee’s wages for the calendar year. These wages are not subject to FICA (Social Security & Medicare) or FUTA (Federal Unemployment) taxes. In other words, these wages are only considered “Box 1 Wages”. They will not show up in Box 3 or 5 subject to either of the FICA taxes. Also, the amounts in Box 1 attributable to insurance premiums are then broken out in Box 14 of the W-2.
The main benefit the shareholder/employee receives from reporting the insurance premiums on his or her W-2 is the option to take the health insurance premiums as a deduction to gross income on line 29 of page one of the shareholder’s 1040. This is called an “above-the line deduction”. This is beneficial because it helps avoid the 7.5% floor of your Adjusted Gross Income (AGI) which your itemized medical expenses are subject to, which in the end will be a more beneficial deduction for the taxpayer.
Unfortunately, it is impossible to give comprehensive tax and accounting advice over the internet, no matter how well researched or written. Before relying on any information provided here, contact a tax or accounting professional to discuss your particular situation.