What is 2% shareholder fringe benefits?
In short
S corporation shareholders who own more than 2% of the stock are treated like partners for fringe benefits, so many benefits that are tax-free to employees are taxable to them.
Key takeaways
- Health insurance premiums the corporation pays for them are included in their wages, then usually deducted as self-employed health insurance.
- Those premiums aren't subject to Social Security and Medicare taxes if paid under a plan for employees.
- Family attribution rules apply, so a 2% shareholder's spouse or child working in the business is also affected.
Where it's tested
TCP: S Corporation Compliance & Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
An S corporation pays health insurance premiums for a shareholder-employee who owns 40% of the stock. How are the premiums treated?