Limited FSA and S corp shareholder

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Topic Author
chaucer
Posts: 19
Joined: Sat Apr 05, 2014 1:32 pm

Limited FSA and S corp shareholder

Post by chaucer »

The benefits period at my employer runs from June 1 - May 31. During my most recent benefits enrollment, I elected to contribute $2,600 to a limited flexible spending account (used for eligible dental/vision expenses in concert with a health savings account). I have been an employee for several years, but will become a shareholder in the S-corp as of July 1.

I realize now that as a shareholder I am ineligible for a limited FSA; however, the $2,600 has appeared in my account and $100 is being withheld from my biweekly paycheck. I called our HR representative but there was confusion as to whether I'm able to discontinue pretax contributions now that the limited FSA appears to be funded. Any advice on how to manage this? I don't want to create a tax headache for myself - thanks in advance.

PS I have already discontinued pretax contributions to my HSA.
Spirit Rider
Posts: 13977
Joined: Fri Mar 02, 2007 1:39 pm

Re: Limited FSA and S corp shareholder

Post by Spirit Rider »

First, I am assuming you will be a > 2% shareholder-employee. I do not know about how to deal with your specific FSA problem.

A > 2% shareholder employee can make pre-tax HSA contributions, but the contributions must be included in your W-2 Box 1 wages, not reported as Box 12 Code W, rather in box 14. Then you take a deduction on you personal Form 1040. This is exactly the same way a > 2% shareholder-employee can deal with their health insurance premiums. However, can this particular S-Corp's payroll handle the correct W-2 reporting.
Topic Author
chaucer
Posts: 19
Joined: Sat Apr 05, 2014 1:32 pm

Re: Limited FSA and S corp shareholder

Post by chaucer »

Spirit Rider wrote:First, I am assuming you will be a > 2% shareholder-employee. I do not know about how to deal with your specific FSA problem.

A > 2% shareholder employee can make pre-tax HSA contributions, but the contributions must be included in your W-2 Box 1 wages, not reported as Box 12 Code W, rather in box 14. Then you take a deduction on you personal Form 1040. This is exactly the same way a > 2% shareholder-employee can deal with their health insurance premiums. However, can this particular S-Corp's payroll handle the correct W-2 reporting.
Thanks very much, your insight is appreciated.
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