Discussion:HSA in S-Corp

The corp. contributions to the plan are provided on the W-2 as a memo item only. The IRS is trying to make sure that:

1) The EE does not take deductions for the contributions the ER made.

2) The maximum amounts you can contribute to an HSA are not exceeded. The EE can contribute and deduct what the EE paid in. Likewise for the ER. But, the contributions made by each party cannot exceed the annual limits. And like everything else these days, there are "catch-up" contributions that can be made by "older" taxpayers.

These include benefits of health insurance and other items under code sections 132, 127 and 129. It is my firm belief that the HSA contributions by the employer qualify.

Why do you think it does not?

Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA.

So, it gets treated like health premiums, fully deductible.

The "garbled" wording made me only think that we should be putting the SEHI premiums on the W-2 as well as the HSA contributions. The wording about the GP is only in reference to the similarity to partners in a partnership. I would focus on the "contributions by an S Corporation........are deductible by the "S" corporation"

I never have added the HSA contributions to box one of the W-2, I have only put the premiums on the W-2.

This is what I do, and I hope it is right. I put the ER and EE contributions on form 8889. This is to determine how much, if any of the HSA contributions are deductible by the EE.

I then fill out part II of this form to see if any of the distributions out of the HSA are taxable to the taxpayer.

Mr. Holbrook was wrong, but brought up some interesting info that I did not know. And I appreciate that.

I am not aware of any credit for setting up an HSA? Could I ask what you are thinking of in this arena?

"Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA."

Doesn't the bolded part above mean that it should be included in the emp/SH's W2? If not, shouldn't it be income somewhere on the 1040? If so, where? Other Income? And then the AboveTheLine deduction?

It sounds to me like it could/should be treated just as SEHI for scorp 2% shareholders is treated...no?

Summarizing what was said above, the S corp takes the deduction, reports the wages on the W2, but they are not subject to FICA or Medicare, and the Employee-Shareholder takes a deduction on their 1040. So in a single shareholder S corp, they get to deduct the contribution twice?

Second question, can an S corporation contribute to the HSA of an employee if the S Corporation is not the entity providing the HDHP? Say the employee-shareholder's spouse's business provides the HDHP...

Thanks!

Q2: I don't see why not.

We've had way too many discussions on this one...

-)

Again this is an employer contribution for HSA f/b/o 2% S/H. I included it in wages. Where does it go on the Form 8889?

Thank you

But, it's not all things equal, is it?

By paying via the S-Corp, the shareholder receives a distribution that is not subject to employment taxes. At least the FICA and Medicare portions.

@Caryn - I believe it goes on line 9, whether contributed by employer, or withheld from employee, the contribution is deemed to be an employer contribution.

As Fred pointed out, the benefit here is that the contribution is not subject to FICA or FUTA tax, although it may be subject to SUTA depending on your state.