Employee benefits

[ashfozz]

What employee benefits are deductible and/or pre-tax benefit accounts are allowed if you are an owner / employee (spouses) of an S-Corp with no other employees and provides HMO healthcare coverage? e.g.

1. Healthcare plan cost is deductible? Any other healthcare expenditure is not allowed?

2. Dental care plan cost is deductible? Any other dental expenditure s not allowed?

3. HSA pre-tax benefit account is not allowed?

4. DCFSA pre-tax benefit account is not allowed?

5. FSA pre-tax benefit account is not allowed?

6. Solo 401K with employer matching up to 25% of remuneration is allowed?

[Katie-P · Accepted solution]

1. The health insurance is deductible, but with a specific process.
   • The S-Corp must pay for the premiums directly to the provider or reimburse the owner. This amount must be included in your W-2 Box 1 wages. These "wages" are subject to federal income tax but are exempt from Social Security and Medicare taxes.
   • Then, on your personal income tax return, you can take an "above the line" deduction for the health insurance premiums, which is highly beneficial because it allows a deduction without having to itemize.
   • The S-Corp cannot deduct other healthcare expenses besides insurance, but you may be able to deduct qualified medical expenses on Schedule A of your personal income tax return if you itemize.
2. Dental insurance would have the same answer as what I answered in #1 above.
3. The S-Corp cannot contribute to an HSA on a pre-tax basis for the owner and spouse. Instead, the owner and spouse can establish their own HSAs and make contributions with after-tax dollars, and then take a deduction for the allowable contributions on their personal income tax return. This is, of course, assuming they have a HSA-eligible High Deductible Health Plan.
4. No, a Dependent Care Flex Spending Account is not allowed for S-Corp owners.
5. Flex Spending Account: same answer as #4, disallowed.
6. A Solo 401(k) is allowed and the S-Corp can indeed provide an employer match of up to 25% of the W-2 wages.

I hope these answers help! Please feel free to post again with any follow-up questions.