I'd like to take advantage of the Self-Employed Health Insurance Deduction on my individual tax return by having my S-Corporation reimburse me for my health insurance premiums. I know that this requires the corporation to include the amount of the premiums reimbursed on my W-2 gross wages. Currently, the corporation doesn't pay me any wages, so I haven't dealt with a W-2 in the past. What are the tax implications of having my corporation pay me wages that are reported on a W-2? What additional paperwork will I need to file with the IRS if the corporation starts reporting wages to me on a W-2? I'm in Texas, so there is no state income tax to worry about, just federal.
@Critter is absolutely correct in that you need to find a tax professional that you are comfortable with to get you started down the right path.
In addressing your general question on impact:
- Wages paid to you will be deducted as an expense and lower the reported taxable income to the shareholder(s). This part is almost a wash; no W-2 income to report, however, higher income from the S corporation vs reporting W-2 income and lower S corporation earnings.
- The S corporation will now be paying 1/2 of your SS. Currently neither you or the S corp are paying into SS system.
- Not paying yourself wages could cause a higher risk of being audited by the IRS. This is a highly scrutinized area for the IRS
- Make sure you discuss other fringe benefits that impact a 2% or more shareholder