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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29953
Experience:  Taxes, Immigration, Labor Relations
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As a co-owner of an S-Corp business which provides a group

Customer Question

As a co-owner of an S-Corp business which provides a group plan for both the two owners and all of the employees, I realize that my health insurance is taxed until I file my return in April. My Gross paycheck is 5000.00 and I pay all withholding taxes based on that amount. However I am also paying the full 6.2% SS tax and the Medicare tax on that full $5000. Is that correct? Health insurance premiums are not supposed to be subject to FICA taxes, correct?
JA: The Expert will know how to help. Is there anything else the Expert should be aware of?
Customer: Don't think so
Submitted: 1 month ago.
Category: Tax
Expert:  Lev replied 1 month ago.

You are correct Health insurance premiums are subject to FICA taxes and are NOT included into W2 boxes 3 and 5.

That amount is ONLY included into box 1 for employees who are also owners of S-corporation.

Customer: replied 1 month ago.
Everything I have read says that health insurance premiums are NOT subject to FICA taxes if our company also provides health insurance to our other employees. I am not understanding you answer. My gross is $5000 per pay. my health insurance - $475.15 - comes out of that gross yet my SS deduction is the full 6.2% - $310.00 - of the $5000.00. Still correct?
Customer: replied 1 month ago.
I get my federal deduction on Line 29 of my 1040 as an owner of the S corp
Expert:  Lev replied 1 month ago.

health insurance premiums are considered fringe benefits that an employer (S-corportaion) provides to you (an employee)

See following IRS publication

Expert:  Lev replied 1 month ago.

for specific conditions when Accident and Health Benefits may be excluded from wages;

and for special rules for 2% shareholder of an S corporation as an employee of the corporation for this purpose.

Specifically - see page 6 at the bottom

S corporation shareholders. Because you can't 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 inthe 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.

Thus consider your example - on your W2 form - you will have

in box 1 = $5000

box 3 = $4525 ($5000 minus $475)

box 5 = $4525

So your social security and Medicare taxes will be calculated based on $4525 while income taxes will be based on $5000.

And you are correct - for federal income tax purposes - you will deduct that amount $475 on form 1040 line 29 as an adjustment to income.