Shareholder Health Insurance
The cost of any health insurance premiums paid by the company on behalf of any S-Corporation shareholders that own 2% or more of the business must be added to the shareholder’s taxable income. Once you have determined how much expense the company has incurred on the shareholder’s behalf (less any premiums paid by the shareholder after tax), this amount should be added to Box 1 on the shareholder’s W-2. Since 2008, to be deductible by the S corporation shareholder, these health insurance premiums must be reported on the W-2. If you use an outside payroll company, please contact them to have these premiums added to the shareholder’s W-2s. If you have internally prepared payroll and need help adding these amounts to your payroll system, please contact your local Yeo & Yeo tax professional for assistance.
Shareholder Bonuses
You may want to consider paying additional salaries or bonuses to active shareholders before December 31 this year. The increase in FICA taxes paid on the additional wages could be significantly less than the savings you could see in the Michigan Business Tax, since you get both a deduction and a credit for Michigan wages paid during the year. The actual cost comparison needs to take into account several factors, including applicable FICA rates, reasonableness of current and projected salaries and even the company’s ability to apportion income to states other than Michigan.
