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HSA contributions as S corp officer income

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  • HSA contributions as S corp officer income

    Hello!

    I am a sole owner/employee of my S corp. Am I able to include my HSA contributions as compensation? So I'm looking at deducting the contributions as an S corp expense, adding it to my compensation in box 1 of my W2, then deducting it again in Schedule 1 of the 1040. It'll probably save me a couple hundred bucks in Medicare taxes. It looks like a correct way to do it, but I'd appreciate some input.

    Thanks!

  • #2
    A small nitpick.

    Technically, you are not deducting the HSA contributions as an S-Corp expense. The reason it is included in your W-2 Box 1, is because the HSA contributions are added to your Form 1120S Line 7 Compensation of officers*. That is what is deducted as an S-Corp expense.

    *This what is known as an after-tax benefit. This is what allows the compensation to be FICA exempt and what allows you to claim the HSA deduction. Owners of pass-thru businesses can not receive pre-tax health and welfare benefits.

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    • #3
      Thanks spiritrider.

      I'm not sure I understand what you said about the HSA being an 'after-tax benefit'. I mean, by doing the process as I described, the contribution is exempt from personal income taxes, right?

      Also, another question about healthcare expenses if you don't mind indulging me here. Can I include out-of-pocket dental expenses as part of officer compensation? We decided to skip dental insurance for 2020 and just paid out of pocket. Since I don't have dental insurance to include in the compensation, can I include the OOP expenses instead?

      Thanks again, really appreciate it.

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      • #4
        Originally posted by DrGuch View Post
        I'm not sure I understand what you said about the HSA being an 'after-tax benefit'. I mean, by doing the process as I described, the contribution is exempt from personal income taxes, right?
        Effectively yes, but it is an after-tax benefit at the business level. Then you take an HSA deduction on your personal tax return. This is similar to any W-2 enployee making HSA contributions by direct deposit instead of a salary reduction and then taking the HSA deduction.

        Also, another question about healthcare expenses if you don't mind indulging me here. Can I include out-of-pocket dental expenses as part of officer compensation? We decided to skip dental insurance for 2020 and just paid out of pocket. Since I don't have dental insurance to include in the compensation, can I include the OOP expenses instead?
        No, you can not include out-of-pocket healthcare costs. Those can only be paid/reimbursed from a pre-tax healthcare plan. Which as I already pointed out, a pass-thru business owner can not participate in. Your only option is dental insurance.

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        • #5
          I figured I can't include those OOP costs. Didn't consider that when we decided to skip dental insurance last year (and this year). Oh well, now I know.

          Thank you very much!

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