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  •  spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1263
    Joined: 02/01/2016

    HSA accounts can never be joint accounts only individual accounts.

    To make pre-(income/FICA) tax HSA contributions by an S-Corps <= 2% shareholder-employee’s payroll deduction requires a health and welfare plan which is not cost effective for one person. S-Corp 2% shareholder-employees can never participate in an S-Corp’s health and welfare plan.

    However, there is a very well established process for S-Corp 2% shareholder-employees to make health insurance premiums and HSA contributions FICA tax exempt and income tax deductible:

    1. The S-Corp pays the shareholder-employee’s health insurance premiums and makes the HSA contributions directly or reimburses the shareholder-employee.
    2. The S-Corp includes those premiums and contributions on Form 1120S Line 7 Compensation of officers.
    3. The S-Corp reports those premiums and contributions on the shareholder-employee’s W-2 Box 1 Wages, but not Box 3 Social Security Wages and Box 5 Medicare Wages (making them FICA tax exempt).
    4. The shareholder-employee claims the Form 1040 Line 25 Health savings account deduction. Provided that neither the shareholder-employee or their spouse can be covered under an employer’s group health insurance plan, regardless if actually covered or not. The shareholder-employee claims the Form 1040 Line 29 Self-employed health insurance deduction.

    If she has a family HDHP this year, she can certainly open an HSA account at Fidelity and contribute $6900. See my previous post from November 28, 2018 at 8:53 am MST on caveats.

    The above four steps must be followed to make the health insurance premiums and HSA contributions income and FICA tax exempt. The HSA contribution is deductible regardless, but the health insurance premiums are not.

    In order for you to be able to do this for next year, you would have to be a >= 2% shareholder-employee.

    #171283 Reply
     HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 76
    Joined: 12/28/2016

    HSA accounts can never be joint accounts only individual accounts.

    To make pre-(income/FICA) tax HSA contributions by an S-Corps <= 2% shareholder-employee’s payroll deduction requires a health and welfare plan which is not cost effective for one person. S-Corp 2% shareholder-employees can never participate in an S-Corp’s health and welfare plan.

    However, there is a very well established process for S-Corp 2% shareholder-employees to make health insurance premiums and HSA contributions FICA tax exempt and income tax deductible:

    1. The S-Corp pays the shareholder-employee’s health insurance premiums and makes the HSA contributions directly or reimburses the shareholder-employee.
    2. The S-Corp includes those premiums and contributions on Form 1120S Line 7 Compensation of officers.
    3. The S-Corp reports those premiums and contributions on the shareholder-employee’s W-2 Box 1 Wages, but not Box 3 Social Security Wages and Box 5 Medicare Wages (making them FICA tax exempt).
    4. The shareholder-employee claims the Form 1040 Line 25 Health savings account deduction. Provided that neither the shareholder-employee or their spouse can be covered under an employer’s group health insurance plan, regardless if actually covered or not. The shareholder-employee claims the Form 1040 Line 29 Self-employed health insurance deduction.

    If she has a family HDHP this year, she can certainly open an HSA account at Fidelity and contribute $6900. See my previous post from November 28, 2018 at 8:53 am MST on caveats.

    The above four steps must be followed to make the health insurance premiums and HSA contributions income and FICA tax exempt. The HSA contribution is deductible regardless, but the health insurance premiums are not.

    In order for you to be able to do this for next year, you would have to be a >= 2% shareholder-employee.

    Click to expand…

    @spiritrider Thanks for the detailed explanation. We have a group health plan at work with other employees as participants. We (our CPA) is already doing the 4 steps (1120S Line 7, W2 box 1 but not Box 3 and 5 as well as 1040 Line 29) for the health insurance premiums where the s-corp is paying directly. I am assuming if my wife remains the sole owner, can she(s-corp) gets to contribute $7000 through payroll for having the family HDHP plan with me as the dependent?

    #171290 Reply
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1263
    Joined: 02/01/2016

    Like health insurance, there is no requirement for an S-Corp shareholder-employee’s HSA contributions to be deducted from payroll. They are after-tax, but not subject to FICA, so it is often better done outside of payroll.

    This is entirely dependent on if you are using software payroll/W-2 generation and if/how that software handles an S-Corp 2% shareholder-employee’s health insurance premiums and HSA contributions. Here we are almost 15 years after the start of HSAs and some payroll systems still don’t handle it properly.

    #171305 Reply
     HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 76
    Joined: 12/28/2016
    Earnest refinancing bonus

    @spiritrider We use Quickbooks desktop version for payroll and it appears to be handling medical insurance premium correctly and there are options to put HSA deduction as well. Yes it is easier to run it outside of payroll but running it in the payroll may save about $1000 in FICA (15.2% of $7000).

    It appears Fidelity HSA accounts are available only for retail users or those employers who already have Fidelity 401K plans on their workplace platform. But since the individual accounts get a routing number and an account number, I am trying to see if Quickbooks can do direct deposit to those HSA accounts.

    #171555 Reply
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1263
    Joined: 02/01/2016

    As I stated in my previous replies.

    1. An S-Corp 2% shareholder-employee can not have health insurance premiums or HSA contributions deducted pre-tax through a health and welfare plan. They can only do those after-tax regardless if made by payroll or not. Then they must use the specific process I outlined before.

    2. A non-2% shareholder-employee can have their insurance premiums and HSA contributions deducted pre-tax through a health and welfare plan. However, any employer share of those must not be discriminatory.

    3. The problem I was referring to about payroll software was specific to the former not the latter.

    #171575 Reply

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