As we near the end of 2019, we would like to remind you about the required inclusion of certain benefits in a two-percent (or more) shareholder’s taxable wages.
Health, dental, vision, hospital and accident (AD&D) insurance premiums, and qualified long-term care (LTC) insurance premiums paid under a corporate plan (2% shareholders only)
These amounts include premiums paid by the S corporation on behalf of a two-percent shareholder and amounts reimbursed by the S corporation for premiums paid directly by the shareholder. These benefits should be included in the 2% shareholder’s taxable wages and are subject to federal and state income tax withholding only (not FICA or FUTA). Two-percent owners can take a corresponding deduction for the cost of their health insurance premiums on their personal tax return.
Employer contributions to health savings accounts and other tax favored health plans (2% shareholders only)
This benefit is treated similar to health insurance premiums (above). The amount of employer contributions to a health savings account on behalf of a two-percent shareholder should be included in the shareholder’s taxable wages. This benefit is also subject to federal and state income tax withholding only (not FICA or FUTA). Two-percent owners can take a corresponding deduction for the cost of their health plan contributions on their personal tax return.
Employer-paid group-term life insurance coverage (2% shareholders only) where the shareholder or their designee is the beneficiary
These payments should be included in box 1 of a greater than two-percent shareholder’s W-2, subject to regular federal withholding, FICA and FUTA. The entire premium paid on behalf of a two-percent shareholder under a group-term life insurance policy is treated as taxable. This treatment differs from the treatment of group-term life coverage for other (less than 2%) employees for whom premiums applicable to coverage in excess of $50,000 is included in income. Please note that any life insurance coverage for which the corporation is both the owner and beneficiary does not meet the definition of group-term life insurance and therefore is not included in the shareholder’s W-2.
Please feel free to contact us with any questions or concerns.