Tax Reform: S Corporation Fringe Benefits

4/9/2018

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:

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.
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:

Health Insurance
HRA
HSA
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:

Group term life insurance
Meals and lodging for the convenience of the employer
Qualified moving expense reimbursements
Qualified adoption assistance
Qualified transportation fringe benefits
Qualified employee achievement awards

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

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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

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Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.

Keana founded this website and decided and created this blog page to offer a space for those seeking knowledge to understand, however not to be confused with advice or planning strategies.

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