Contact UsWho much S-corp owner can pay himself as salary and how to subscribe and pay Medical Insurance premiums?
I have S-Corp, incorporated in Texas state. There are only two employees, my self and my wife. I am the 100% share holder of this S-corp. I have some questions related to S-corp's wage payment to their employee (myself who is 100% share holder) and particularly about medical insurance payment. Hereis the IRS website link that I was reading...
www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues
Questions:
About Salary:
1) I am the only earner in the company and I earn about $110/hr as consultant. Is $35/hr considered as reasonable salary in this case, if I have to pay salary to my other employee (my wife - who does mostly administrative work on part time basis at 10$/hr for 10 hrs per week) and pay all the expenses related to my travel, corporation, insurance and also keep the remaining profits for future salary (ours is highly uncertain job, where may not be having consulting assignments for 2 or 3 months at a stretch, until we find our next consulting assignment).
About Medical insurance:
I have signed up for Health Savings Account eligible Medical insurance plan with Blue Cross Blue Shield of Texas (insurance company). The plan is in my name as a primary subscriber. I pay about $310/month premium (it is high deductible plan). In this plan, all my family members are included (my children and my wife).
1) Can my S-corp pay all this premium? If not, to what extent it can contribute?
2) Should this be paid directly using S-corp's checking account? So far I have paid it from my personal account, as I was not aware of the rules for the previous year.
3) My 2015 taxes (both corporate and personal) are not yet filed. I am still finalizing them and I can adjust my prior year pay stubs to show that my company has paid them, if it is allowed for S-corp to pay the premium.
Thanks, Mohammad Abrar
www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues
Questions:
About Salary:
1) I am the only earner in the company and I earn about $110/hr as consultant. Is $35/hr considered as reasonable salary in this case, if I have to pay salary to my other employee (my wife - who does mostly administrative work on part time basis at 10$/hr for 10 hrs per week) and pay all the expenses related to my travel, corporation, insurance and also keep the remaining profits for future salary (ours is highly uncertain job, where may not be having consulting assignments for 2 or 3 months at a stretch, until we find our next consulting assignment).
About Medical insurance:
I have signed up for Health Savings Account eligible Medical insurance plan with Blue Cross Blue Shield of Texas (insurance company). The plan is in my name as a primary subscriber. I pay about $310/month premium (it is high deductible plan). In this plan, all my family members are included (my children and my wife).
1) Can my S-corp pay all this premium? If not, to what extent it can contribute?
2) Should this be paid directly using S-corp's checking account? So far I have paid it from my personal account, as I was not aware of the rules for the previous year.
3) My 2015 taxes (both corporate and personal) are not yet filed. I am still finalizing them and I can adjust my prior year pay stubs to show that my company has paid them, if it is allowed for S-corp to pay the premium.
Thanks, Mohammad Abrar
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Tax Professional Answers
John Stancil
Mohammed,
Thanks for your question. You can pay yourself "reasonable compensation." This means that you should look to see what others doing the same work are being paid and pay yourself something in that neighborhood. There can be consequences for underpaying yourself as well as overpaying. The IRS looks at both. In addition to considerations of making comparisons, you can take into account the financial status of your organization. If it is a start up with little or no income, you can pay yourself a smaller amount. On the other hand, if it is a very profitable corporation, you should pay yourself accordingly. $35 an hour may be reasonable, but I couldn't say without studying your entire financial picture.
The corporation can pay your health insurance, but is should be included as wages in box 1 of your W-2. It is not subject, however, to social security or Medicare taxes. The amount may be included on page 1 of your 1040 as a self-employed health insurance deduction.
Leave a Comment
429 weeks ago
Thanks for your question. You can pay yourself "reasonable compensation." This means that you should look to see what others doing the same work are being paid and pay yourself something in that neighborhood. There can be consequences for underpaying yourself as well as overpaying. The IRS looks at both. In addition to considerations of making comparisons, you can take into account the financial status of your organization. If it is a start up with little or no income, you can pay yourself a smaller amount. On the other hand, if it is a very profitable corporation, you should pay yourself accordingly. $35 an hour may be reasonable, but I couldn't say without studying your entire financial picture.
The corporation can pay your health insurance, but is should be included as wages in box 1 of your W-2. It is not subject, however, to social security or Medicare taxes. The amount may be included on page 1 of your 1040 as a self-employed health insurance deduction.
Question Owner
Thank you John again for your reply....I have two related questions: For S-corps, the only way to pay insurance for owner-employee is to pay as wages (subject income tax, but not SS/Medicare taxes)? Is it possible to pay the entire premium as 'company contribution' (and not get reflected in the pay stub of employee)? If it is not allowed, is there any limitation on who much premium can the company pay to the employee towards the 'S-corp owner health insurance'?
Reply
429 weeks ago
John Stancil
You can have the Corp pay up to he full cost but it still must be included as wages n the W-2. But since you can deduct it as self-employed health insurance (assuming a profit), It has the net effect of not affecting your taxes.
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429 weeks ago