S Corporation Health Insurance Reporting Requirements
posted Jan 12, 2018 by Karen S. Rice, CPA in the Global Tax Blog
S Corporation shareholders, do you know your health insurance reporting requirements?
First of all—what exactly is an S corporation?
Corporations that elect to be treated as S corporations are treated, for federal and most state tax purposes, as a pass-through entity, meaning it “passes through” its income and loss items to its shareholders.
- There is no “double taxation” like a regular C corporation. Each shareholder is subject to his/her own individual tax rate on the income or losses passed through from the S corporation.
- Owners are able to deduct their pro-rata share of losses on their personal returns.
- Each shareholder’s personal assets are shielded from S corporation creditors, as they would be in any corporation.
How an S corporation Deducts Health Insurance Premiums
An S corporation deducts the premiums it pays for accident and health insurance to cover a 2% shareholder/employee (and his/her spouse and dependents) as compensation paid to the shareholder/employee. A 2% shareholder is any person who owns more than 2% of the outstanding stock on any day during the S corporation’s taxable year.
The premiums are included in the shareholder/employee's salary and reported on the individual's W-2 form.
W-2 Reporting Requirements
In order for a more than 2% shareholder in an S Corporation to deduct medical insurance premiums paid by the company on their behalf, the total premiums must be reported on the shareholder’s Form W-2 in the same year the premiums are paid. Note that the health insurance plan must have been established by the business and not by you personally.
After it has been gathered that the business established the plan, the shareholders may then deduct the cost of the health insurance premiums as an adjustment to income on their individual Forms 1040.
Are the medical insurance premiums subject to other taxes?
The medical insurance premiums are not subject to Social Security (FICA), Medicare or unemployment taxes (FUTA). This additional compensation is included in Box 1 (Wages) and Box 14 (Other) with the description “SH Health Ins” of the Form W-2 Wage and Tax Statement that is issued to the shareholder at year end. However, the amount is not included in Box 3 (Social security wages) or Box 5 (Medicare wages and tips) of Form W-2.
Anything else you should include?
You should provide your payroll service with this information (prior to the end of the year) so that it can be included in your Form W-2. Most payroll services will charge an additional fee for rerunning any affected Form W2s, so it is crucial that the information be provided to the payroll service in a timely manner.
When are W2s due?
Employers and small businesses must submit W-2s by January 31st 2018.
Please contact us if you have any questions or if you need assistance with your W-2 reporting.