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SEHI for an employee?


Possi

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This one gets personal because it's my new daughter-in-law. I'm doing the first MFJ for them, they got married last June. 

Her parent's own a Veterinary clinic (hospital) and she has worked there for over 20 years, in the office and reception area which are together. 

I get a copy of her return from last year. She printed it from online and doesn't have any of the back-up or copies of the W2 or K1. 

 I see she has wages and then I see $11k as an adjustment for SEHI. (A large accounting firm did her taxes. They do the accounting for the business as well.) So, I look for the K1 and assume she is a named partner of the business.  The K1 has zero income on it. (This is a very successful business, by the way.)

So, I ask her about it. She doesn't know one single thing about any of this. She asks the accountant... So, this is what is unfolding...

She is not only grossly underpaid, by any standard, but the health insurance the business pays on her behalf is added to her W2 at the end of the year. It's for her and her 2 children, and it's about 1,000/mo.

Then, it is adjusted off the return as SEHI.

The accountant said in an email to her, that she does not and will not get a K1. He just uses it to link to her SEHI so he can take the adjustment. He even said he has to amend her 2018 W2 to include the insurance paid on her behalf by the clinic. (If they had left the insurance off, she would have been getting EIC since her divorce from her sons' father, and believe me she needed it.) 

Am I missing something? Am I really uncovering a rat's nest here? 

Is there anything legal about an employee taking SEHI? 

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Is it an S-corp where HI is added to W-2 wages and then deducted as SEHI? Is she maybe a shareholder with a capital % but but 0% income/loss? She should still get a K-1, though; and a basis worksheet from the clinic.

I'd be real tempted to tell her to continue using that accountant, yes on your son's MFJ return, or better yet, her MFS return. Do you want to unravel her parents' business? Extensions!

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1 hour ago, Lynn EA USTCP in Louisiana said:

The family attribution rules are applied regarding the SEHI.  The presentation for that was correct.   See IRC Code Section 318's Family Attribution Rules

Thanks. I read about it on the IRS website, thanks to your post. I had no idea they could do that. So, when they got married, my son put his new wife and her children on his city health insurance and took it out of her parent's hands. Am I allowed to take that same SEHI adjustment for the portion of health insurance (that was bumped into her W2)? It was done before his group plan was available to her as his wife. 

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2 hours ago, Lynn EA USTCP in Louisiana said:

For this purpose, the SEHI deduction is the same as for the actual SH. Did I correctly understand your question ? 

Since she and the kids went on my Son's insurance halfway through the year, am still able to deduct the portion of her health insurance that was paid by the clinic, and included in her wages, as SEHI? Or, did getting married during the year and switching insurance negate that benefit for the entire year? 

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