As the year winds down, it’s a great time for S-corporation owners to review their tax compliance, especially regarding shareholder-employee health insurance and expense reimbursements. Staying on top of these rules can help avoid tax issues and ensure compliance with IRS guidelines. Here are key reminders:
1. 2% Shareholder-Employee Health Insurance
If you own more than 2% of an S-corporation, health insurance premiums paid or reimbursed by the company for you and your family must be treated as taxable wages. Here’s how to handle it correctly:
Include premiums on Form W-2: The health insurance premiums must be included in Box 1 of the W-2 as taxable wages. However, they are not subject to Social Security or Medicare taxes (Boxes 3 and 5).
Deduct on personal tax return: Shareholder-employees can potentially deduct these premiums on their Form 1040 as an above-the-line deduction if they meet other requirements, such as having no access to other employer-subsidized health insurance.
We will be reaching out to many of our S-corporation owners to assist with this reporting.
2. Reimbursement of Business Expenses
S-corporations can reimburse employees, including shareholder-employees, for legitimate business expenses. However, proper documentation is critical:
Accountable Plan: Reimbursements under an accountable plan are not taxable to the employee and are fully deductible by the corporation. To qualify, the plan must require the employee to substantiate expenses and return any excess advances.
Non-Accountable Plan: If the plan doesn’t meet IRS requirements, reimbursements are treated as taxable wages and must be reported on Form W-2.
Be sure reimbursements are paid before the end of the year to capture the deduction in 2024.
3. Reset Retirement Deductions
Use this time as an opportunity to review and update your retirement withholdings and be sure you are set to max out at the new 2025 levels. Notify your payroll company to adjust your withholding for the first pay of 2025.
Questions
S-corporations have some unique reporting requirements. Be sure to account for these items as the year winds down! If you have any questions, please contact TrueBlaze Advisors so we can help.