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2% S Corp Owner Transition


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Last week I recently became a 2% owner of an S Corp of which I am an employee.

I am participating in Dependent Day Care and FSA to the max amounts.  Also, I participate in an AFLAC type policy.

I understand there will be tax implications but I'm trying to figure out what exactly they are.  Do all of these pre-tax items get treated the same way for this tax year?

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As a 2% owner, you are no longer eligible to receive pre-tax health insurance, FSA,  DCFSA, etc... benefits.

The S-Corp can pay or reimburse health insurance premiums and/or pay or reimburse HSA contributions, but those are included in officer compensation and reported on your W-2 Box 1, but not Boxes 3&5. This effectively makes them after-tax, that may/can be deducted on your personal tax return. 

AFLAC may offer supplemental insurance policies through your employer, but they are not sponsored  by your employer as part of any employer plan and are after-tax. You may continue to purchase these supplemental policies, but you generally should only carry cost-effective insurance for risks you can not self-insure. Supplemental insurance policies are some of the highest priced policies in terms of premium to pay out ratios for insignificant risks. Having a good emergency fund to self-insure these risks is far more cost effective. 

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