S Corp Officer HSA and Insurance Premiums

[David]

The W-2 for a S Corp officer correctly shows the health care premiums paid for the officer in box one. The same amount is reported in box 12 code DD. I usually see this reported in box 14 with a description of something like S Corp Officer Med Premiums and a dollar amount.

The bookkeeper is preparing a W-2C because the health care premiums weren't reported correctly in the original W-2. She sent me a copy of the new W-2 with the code DD reported.

Is this correct or does it matter whether it is reported in box 12 or box 14?

Also, the company paid all of the officer's HSA contributions for $6,500. The W-2 shows this in box 12 with code W just as it would be reported for a regular employee. Does the HSA contributions also have to be reported in box 1 or is the W-2 correct to report it with code W?

Thanks.

[Jack from Ohio]

I don't think that treatment is allowed, unless it is a single member S-Corp.  ACA Effective Jan. 1, 2014.

Must be added as wages.  Subject to SS & Medicare.  Boxes 1, 3 & 5.

[Abby Normal]

31 minutes ago, Jack from Ohio said:

I don't think that treatment is allowed, unless it is a single member S-Corp.  ACA Effective Jan. 1, 2014.

Must be added as wages.  Subject to SS & Medicare.  Boxes 1, 3 & 5.

It was extended thru 12/31/15 early in 2015.

[Abby Normal]

I don't think the code DD vs. Box 14 matters, as long as the health insurance is in box 1 wages. As for the Code W treatment for HSA contributions, it may not be technically correct but as long as he doesn't take a deduction on the 1040, it all works out.

I've always added HSA paid by S corp to box 1 wages and then taken the HSA deduction on the 1040, because when I researched it, that seemed to be the correct way to do it.

[mircpa]

It is allowed as per IRS notice 2005-8

The 2-percent shareholder-employee, if an eligible individual as defined in section 223(c)(1), is
entitled under sections 223(a) and 62(a)(19) to deduct the amount of the contributions
made to the 2-percent shareholder-employee’s HSA during the taxable year as an
adjustment to gross income on his or her federal income tax return

ATX tax software does not allows to take deduction so I decided at best not to include in line 1 wages of W2, have HSA contribution done at shareholder level  and take 1040 page 1 deduction

[Jack from Ohio]

1 hour ago, mircpa said:

It is allowed as per IRS notice 2005-8

The 2-percent shareholder-employee, if an eligible individual as defined in section 223(c)(1), is
entitled under sections 223(a) and 62(a)(19) to deduct the amount of the contributions
made to the 2-percent shareholder-employee’s HSA during the taxable year as an
adjustment to gross income on his or her federal income tax return

ATX tax software does not allows to take deduction so I decided at best not to include in line 1 wages of W2, have HSA contribution done at shareholder level  and take 1040 page 1 deduction

This is very old and is NOT the current rules as changed by the ACA.  Only single member S-corps have the right to claim self-employed health insurance on the front of the 1040.  All other S-corp shareholders must count any amounts paid for their health insurance as additional wages subject to FICA withholdings.  These can be deducted on Schedule A subject to the 7.5 or 10% haircut.

It seems that too many S-Corp accountants are not up to speed on the latest regulations to go into effect from the ACA concerning shareholders and medical insurance.

ACA was NOT KIND to S-Corp shareholders.

[grmy2h]

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.

However, these additional wages are not subject to Social Security, or Medicare (FICA), or Unemployment (FUTA) taxes if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.

 

The Affordable Care Act (ACA) did not change the above rules regarding the federal tax treatment of health and accident premiums paid for a 2% shareholder.

[Randall]

Yes Jack and grmy2h.  My understanding is if only one S shareholder employee or two spouses are only 2 employees (can count as one) OR with other employees, if the plan is a group  plan compliant with ACA, then the 2% S shareholder employee treats the health insurance premiums as we have in the past.  That is, add to W2 box 1, not boxes 2,3 and take above line deduction on 1040.  Also, LTC premiums are exempt from the ACA and can be treated this way even if there are other employees, etc.  I'm not sure about the HSA treatment.

[Abby Normal]

Yes, I plan on switching to a group plan to save on payroll taxes for me and income taxes for me and my employees. Also, none of us will have to deal with insurance exchange websites and PTCs.