Tax Reform: S Corporation Fringe Benefits

By Firm Staff

With regards to the recent Tax Reform it is unclear if Fringe benefits  will be a good thing.  In the Case of the S Corp it may or may not be if you own more than 2% of the company.  Regardless if you benefit the  Federal tax law does allow the cost of fringes benefits as an deductible expenses for your S corporation tax return.
 
However, Shareholders who owns more than 2%, may suffer additional taxes on some of the benefits because the tax code requires your corporation to put selected benefits on your W-2. The outcome is sometimes favorable and sometimes not.
 
The rule that cases this concern is the following:

1. Under the federal income and employment tax rules for the most popular fringe benefits, tax law treats the more than 2 percent shareholder of an S corporation as a partner and denies the benefits. 
2. Related-party stock attribution rules apply to the S corporation.
   1.  Spouse, parents, children, and grandchildren own the same stock you own—and if you employ them in your S corporation, their fringe benefits generally suffer the same fate as your fringe benefits.

---

Fringe Benefits = Possibly Good

Fringe Benefits = Zero Benefit

---

The following fringe benefits via tax code are a personal benefit to the more than 2% shareholder:

1. Health Insurance
2. HRA
3. HSA
4. Disability Insurance

​In order to receive a tax benefit from Health Insurance the S Corp will have to :

• Pay for your insurance premiums
• Deduct the cost of Premiums, using the self employed health insurance deductions
• Include the insurance as wages that aren't subject to FICA.

The following fringe benefits doesn't have any benefit to the more than 2% shareholder:

1. Group term life insurance
2. Meals and lodging for the convenience of the employer
3. Qualified moving expense reimbursements
4. Qualified adoption assistance
5. Qualified transportation fringe benefits
6. Qualified employee achievement awards

All these benefits increase the more than 2% shareholder along with the S Corps FICA.

---