John Bullis: W-2 for owners of S corporations
There is time to be sure a 2019 W-2 for an owner of more than 2% of an S corporation is correct.
The rule is clear. The W-2 must show in Box 1 (Wages subject to income tax) the cost of medical insurance premiums for the owner. The cost of the medical insurance is not subject to Social Security, Medicare or FUTA (unemployment) Taxes and is not to be included in the amounts in Boxes 3 and 5 of the W-2.
The individual return will include as wages the amount in Box 1, but the cost of the medical insurance will be a deduction claimed on Schedule 1, Line 29. So, it is included and also deducted.
Whether you do your own W-2 forms or have a payroll service, it is important to get this done right. But you need to be sure to tell the payroll service of the amount paid for medical insurance premiums for owners of 2% or more of the S corporation.
IRS has Audit Techniques Guides (ATGs) that help the IRS auditors understand what to look for and how to be sure the item is reported correctly. The guides are available on the internet and could make interesting reading.
This matter is important to IRS, so it is best to do it right in the first place.
A question comes up of if the S corporation has less than 50 employees, must all of the employees be provided with medical insurance if the owner’s medical insurance is paid by the S corporation? The answer is any medical insurance provided to the employees that own less than 2% of the S corporation is a tax-free benefit. And the owner’s medical insurance (owns more than 2%) has special rules. The owner’s W-2 must include the cost of the premiums in Box 1 of the W-2.
The IRS announced in 2011 it would not enforce a requirement that if the owner got medical insurance premiums paid by the S corporation, all employees would have to be covered also. IRS said it would not prohibit discrimination on the basis of salary until additional guidance was released. That additional guidance has not been released yet. With the Affordable Care Act (ACA) possible amendments and general uncertainty, that additional guidance may never come. If it does, you will have time to prepare what to do.
Avoid a problem by being sure the cost of owner’s medical insurance premiums are included in the 2019 W-2 in Box 1. Also be sure that cost is not included in taxable wages for Social Security, Medicare and FUTA taxable amounts.
Did you hear “I want my children to have all the things I couldn’t afford. Then I want to move in with them.” Phyllis Diller