Paying Taxes on S Corp Employee Benefits
In this audio snippet, you'll hear about:
- If S corp, employee must pay taxes on employee benefits
- If C corp, that is not the case
Audio Transcript
Yosef:
There is also a different issue which I think people don't realize. I
know that the American Association of Attorney–CPAs is fighting this
right now. A greater than two percent shareholder of an S–Corporation
who receives employee benefits from the corporation has to pay taxes on
those benefits, even though if they were working for a C–Corporation
they wouldn't have to.
For
example, a lot of C–Corporations provide their employees with full
medical benefits. If that same corporation were an S–Corporation,
providing their employees with full medical benefits, the shareholders
who worked in the corporation would actually have to pay tax on those
medical benefits.
Now, they may be entitled to still deduct
those medical expenses on their personal tax returns, but it would be
an itemized deduction subject to any amount greater than seven and a
half percent of their adjusted gross income.
Travis:
All right.
Yosef:
Why the American Association of Attorney–CPAs are fighting this right
now is because there is an interesting anomaly in this. If you are a
small business that is not a corporation, today you can deduct your
healthcare insurance premiums as an above the line deduction....
Travis:
Mm–hmm.
Yosef:
...on the first page of your 1040. However, if you choose to
incorporate as an S–Corporation, you cannot do that, and it doesn't
really seem to be equitable.
Travis:
Yeah.
Yosef:
I am sure that Congress, within the next year or so, is going to have to address that issue.
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