As 2024 quickly comes to a close, and you begin making plans for the holiday season, we want to take a chance to remind S Corporation shareholders to include planning for the required tax reporting and withholding requirements for health insurance premiums paid by an S Corporation on behalf of more than 2 percent shareholder-employees.
Law
As you may know, shareholders that own more than 2 percent of the company are subject to special rules relating to accident and health insurance premiums. These payments are deductible by the S corporation, but must also be included in the income of the shareholder. The premiums paid are reported as additional wages on Form W-2. While these amounts are considered wages for Federal, state, and city withholding, these payments are not considered wages for FICA and FUTA tax purposes (Revenue Ruling 91-26).
Application to Other Benefits
While Revenue Ruling 91-26 only specifically addressed accident and health insurance premiums, it is generally accepted that the theory applies to other fringe benefits. These benefits include group term life insurance premiums not exceeding $50,000, disability insurance premiums, medical reimbursement plans, and long term care premiums. As such, we recommend that you treat the cost of these additional fringe benefits like accident and health insurance premiums as detailed above for the more than 2 percent shareholder-employees.
Required Action
Please review your records to determine the proper amounts to be included on the more than 2 percent shareholder-employee’s Form W-2. For those of you who utilize outside payroll services, be sure to provide them timely notification of the amounts of these benefits for inclusion in 2024 reporting.
Please feel free to contact your Rudler, PSC advisor at 859-331-1717 if you have any questions about these rules.
RUDLER, PSC CPAs and Business Advisors
This e-Tip is presented by Heather Davis, CPA.
If you would like to discuss your particular situation, contact Heather at 859-331-1717.
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