S.E.E.D. Plan Guide to S-Corporation Shareholders

Shareholders electing S-corporation status and executing a medical reimbursement plan as allowed by several IRS tax codes can save taxes. The corporation can implement an employee benefit plan to include reimbursement to the stockholder-employee of family health insurance premiums and all unreimbursed medical expenses.

These plans are traditionally known as "section 105" plans and must be offered to non-shareholder employees unless they can be excluded as allowed by the IRS code.

Medical reimbursement plans are considered employee benefits and the shareholder/officer must be an employee receiving W-2 income in order to qualify. For 2% or greater shareholder employees (and their spouses), the reimbursed amounts are considered compensation. This additional compensation is included in Box 1 (Wages) of the Form W-2, Wages and Tax Statement issued to the shareholder. If these payments are made under a "plan" for the S corporation employee and their dependents, the amount would only be subject to income tax withholding, and would not be included in Boxes 3 or 5 of Form W-2 wages for Social Security or Medicare, nor would it be subject to FUTA tax.

As an example, the shareholder/employee incurs an expense of $7200 for family health insurance premiums and is reimbursed $2500 for non-insured medical expenses. There would be a tax savings of $1484 ($9700 X 15.3%).

Flex Benefits and Administration administers "section 105" plans for sole proprietors, partnerships, LLC's and corporations.

Back

© 1996 - 2007 Flex Benefits & Administration
Email: kent@seedplan.com