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How do medical expenses covered by an S-corp, paid for all…

how do medical expenses covered...
how do medical expenses covered by an S-corp, paid for all employees, flow to the individual for taxation:
This is for an LLC, taxed as an S Corp. I deduct medical insurance payments for ALL employees their spouses (I am the only employee). I deduct this on my 1120S, line 19 (further detailed in an attached statement). This amount then flows to the employee W-2, box 12, code DD. It is later deducted on 1040, line 29, I think.
I also deduct all medical expenses beyond the insurance (co-payments, amounts not covered, etc.). This I think I should also deduct on 1120S, line 19, but am not sure how to identify it on the attached statement. Further, this amount flows somehow to the W-2, but not sure what box or code, but it may be a 1099 of some sort (probably 1099-??). It is later deducted on the individuals 1040, schedule A, under medical expenses, subject to the percentage rule there.
Can you verify this and tell me how to identify the medical expense deduction and how it flows to the individual?
Summary of questions asked above:
1. Are medical insurance payments paid by an S-Corp reflected on employees W-2, box 12, code DD, and later deducted on 1040 line 29?
2. How do medical expenses (different from insurance payments) paid for by an S-Corp (which pays this for all employees and their spouses) flow to the individual, for their deduction on 1040, Schedule A (or at least that portion over 10% of 1040 line 38)?
3. Is there any other reporting necessary for all of this (other than G-1003 and W-3)?
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Answered in 22 minutes by:
2/8/2017
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,125
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You need to include medical expenses paid by S-corporation into W2 box 12, code DD ONLY for employees who are less than 2% shareholders.
See IRS publication 15b - page 5

https://www.irs.gov/pub/irs-pdf/p15b.pdf

Exception for S corporation shareholders. Don't treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% share-holder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder.

treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding.
However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes.

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So include that amount into W2 box 1 - and it will be deducted by the S-corporation as wages.

Do not claim that deduction separately on line 19.
Do not include into boxes 3 and 5.

Then - on your own tax return - deduct these expenses on line 29 as Self-employed health insurance deduction.

See instructions - page 33

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Line 29 Self-Employed Health Insurance Deduction. You may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents.

-- You received wages in 2016 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.

The insurance plan must be established under your business - means S-corporation established an insurance for its employees.

Lev
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Category: Tax
Satisfied Customers: 33,125
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