What a great time of the year. The holidays are upon us, and tax season is right around the corner.
Since there is still time to make any reporting changes needed before year end, those who are 2% or greater shareholders in an S- Corporation should be sure not to miss this item. As most already know, health insurance premiums paid by the S- Corporation on behalf of a 2%> shareholder are deductible to the business as a business expense. However, the Shareholder must report these premiums as wages on their Form W-2, which are subject to income tax withholding. The medical premiums are not subject to Social security, Medicare or Unemployment taxes or withholdings. Since the shareholder is paying income taxes on the premiums, they are allowed to take an offsetting deduction for the cost of the premiums on their individual returns.
So, for those of you owners of S- Corporations, be sure that your premiums are reported properly by your payroll provider, and be sure to capture the offsetting deduction on your individual income tax return.