News & Events

W-2 Reporting Requirements

Reporting Requirements For Health Insurance Premiums Provided to S Corporation Shareholders

shutterstock_339864725

– by Susan B. Windle, CPA, MST

In order for a more than 2% shareholder in an S corporation to deduct medical insurance premiums paid by the company on their behalf, the total premiums must be reported on the shareholder’s Form W-2 in the same year the premiums are paid. Failure to comply with these reporting requirements may result in the loss of the deduction for the corporation.

The medical insurance premiums are not subject to Social Security (FICA), Medicare or unemployment taxes (FUTA). This additional compensation is included in Box 1 (Wages) and Box 14 (Other) with the description “SH Health Ins” of the Form W-2 Wage and Tax Statement that is issued to the shareholder at year end. However, the amount is not included in Box 3 (Social security wages) or Box 5 (Medicare wages and tips) of Form W-2.

The employee shareholders may deduct the cost of the health insurance premiums paid on their behalf by the S corporation as an adjustment to income on their individual Forms 1040.

If a corporation prepares their own W-2 forms, they should be sure to include the health insurance premium in the taxable wages on W-2 of any more than 2% shareholder.

If the company uses an outside payroll service, the payroll service should be provided with this information prior to the end of the year so that it can be included in the shareholder employee’s Form W-2. If the information is not provided to the payroll service in a timely manner, most payroll services will generally charge an additional fee for rerunning any affected Form W-2s.

Please contact us at 401-331-0500 if you have any questions or if you need assistance with your W-2 reporting.