Tax Accounting CPA

Phoenix Accounting Firm | Year end for SCorps

As the year draws to a close, their are a few tax issues we would like to take the opportunity to remind our S-Corporation shareholders of. Shareholders of S-Corporations that own a greater than 2% interest must include on their form W2 the following fringe benefits as additional wages.

Company paid health insurance premiums must be included in the gross wages figure. This amount is included in the wages of the shareholder and deducted by the corporation, effectively lowering the profit of the business. The shareholder then deducts the amount self-employed health insurance as an above the line deduction. This creates 1 increase and 2 decreases to income for the same amount. Failure to include the health insurance paid amount on form W2 results in no deduction for the S-Corporation. The shareholder would then be required to deduct the premiums paid on schedule A where they would be subject to the income limitation.

Contributions to an HSA are treated similarly to health insurance premiums paid. HSA contributions are deductible as wages by the S-Corporation and the shareholder receives a deduction on page 1 of their 1040 income tax return. Failure to include the HSA amount in gross wages results in no deduction for the S-Corporation.

It’s also important to note that greater than 2% shareholders are not eligible to participate in cafeteria benefit plans.

If you are using a payroll company for your payroll, you should get the amounts paid for health insurance premiums and HSA contributions to them as soon as possible to avoid having to pay to have your W2’s and year end reports redone. If you would like to use us to help you prepare your W2’s and year end reports or if you have any other questions, please don’t hesitate to contact us at Dusseau & Makris, PC, your Phoenix CPA firm.