2% Sub S Shareholder Medical

[Corduroy Frog]

I used to know this stuff inside and out.  Now I can find citations but nothing which takes me thru the process A to Z:

Shirley is a 5% shareholder and an employee for a Subchapter S corporation.  The company pays out $5000 in medical insurance, and she contributes $1500 out of her paycheck. 

1. How much is added to her taxable income on her W2, $5000 or $3500?
2. Is the amount added to Taxable income? Social Security Wages? Medicare Wages?
3. Does the amount qualify as Self-Employed Health Insurance deduction on her personal return?

[Abby Normal]

Since the company only paid 3500 net, add 3500 to box 1 wages only, not Social Security or Medicare.

The 3500 is SEHI.

The 1,500 should come out pretax so she doesn't lose out on the deduction.

[Medlin Software, Dennis]

Are you preparing the W2?  That implies you are the payroll processor.  If you are not, and the W2 is not correct, get the corp to fix it.

From the payroll side, the amount the corp pays direct has other consequences, such as likely increasing WC wages.  Also, my position is a proportionate amount (constructive receipt) should have been added to every paycheck, to ensure proper withholding.  (Yes, the amount is deductible to the employee, but tax agencies get their withholding up front.  I get the argument that it should not alter withholding quite often.)  The amount should have been reported on 941 forms as well (not just the "add it to a W2" method).  The employee should receive the benefit of higher reported wages, such as if they needed to claim UI, WC, FFCRA, apply for a loan, etc.  And so on.

[DANRVAN]

17 hours ago, Corduroy Frog said:

The company pays out $5000 in medical insurance, and she contributes $1500 out of her paycheck. 

Are you saying the company pays 5,000 and e'e an additional 1,500 for total of 6,500?

Or are you saying total premium is 5,0000:  split 3,500 company and 1,500 e'e?

17 hours ago, Corduroy Frog said:

Does the amount qualify as Self-Employed Health Insurance deduction on her personal return?

If neither taxpayer or spouse is eligible for an employer health plan, then the net amount paid or reimbursed by the Sub-S qualifies for the SEHI deduction.  So if company paid a net of $3,500, that is the taxpayer's deduction.

[Corduroy Frog]

Thanks for all who have replied.

To be clear on my example, it looks like:

• The net of $3500 is added to Federal Taxable Income
• The $3500 is not added to Social Security wages or Medicare wages.
• $3500 becomes SEHI on Shirley's personal tax return, given no complications with spouse.