Today TaxMama hears from Carole in Washington State, with a good question. “My husband and I are principals in a WA state LLC that files as an S Corp. We both have high deductible Health Savings Accounts. Is there any benefit to paying premiums through the company since it would go on our W-2s as income?”
The HSAs are an excellent idea. When you’re generally in good health, you probably won’t use many medical services except for routine checkups anyway. So cutting your premiums AND getting a tax break at the same – that’s an excellent deal. Besides, if you don’t tap your contributions to pay your medical bills – that’s like having extra IRA contributions that grow tax-free. And we all know that our medical expenses will rise when we get much older. You’ll be able to tap your HSA in the future to draw tax-free money to cover your expenses when you’re retired.
But, should you run the cost through your S Corporation? I can’t really see any benefit. You’re already taking the costs as an adjustment to income. Running the costs through your payroll only
On the other hand, running it through the payroll lets you use more of the profits from your S Corporation without facing IRS audits about inadequate shareholder compensation. So if you’re willing to run it through payroll…go for it. That’s an extra $6,000 – $10,000 you can draw from your profits, without it coming directly from the net paycheck you take home.
And remember, you can find answers to all kinds of questions about health savings accounts (HSAs) and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS Rev. Proc. 2009-29 :: 2009 HSA Contributions limits
- US Treasury’s FAQs :: All about Health Savings Accounts