Tax Treatment of Partially Self Funded Plans in S-Corps

[Guest ScottN]

Can someone clarify for me the tax treatment of premiums and benefits received by 2% or greater shareholders from a partially self funded plan in an S-Corp? I have been told by a CPA that the equivalent fully insured premium would be taxable to the 2% or greater shareholders. I have also been told by a TPA that the benefits paid for claims incurred by the 2% or greater shareholder and his or her covered dependents would be taxable as well.

Any comments would be appreciated.

[Guest Jeff Seiler]

Partners and sole proprietors are considered self employed. Thus company paid premiums turn into income, as do paid claims.On the other hand, self-employed are allowed to deduct 60% in 1999 of amounts paid for medical care for self and dependents on their own tax statements. Using fully insured equivalent would not be appropriate unless the plan is fully insured.