Medical Expense benefits for S Corp owner.

[Guest SSCI]

In looking into establishing a Flex Spending program for our company, I was informed that the company owner nor his family can participate because the company is established as a S Corp and "otherwise" already has the benefits of the Flex account. How is this? and how can he excercise these benefits to pay for medical expenses (pre-tax) not covered under the our health insurance? Thanks

[Joe Priselac]

More than 2% stockholders of Sub S corporations can not participate in a Section 125 plan. Also their spouses and children are not allowed to participate even though they are employees themselves because of the attribution rules contained in Code section 318.

[Guest SSCI]

OK....how about an IRC Section 105 medical reimbursement plan?

(The company pays in full for all employee's health, dental, life, and disability insurance). We are simply seeking a means to allow employees (including the S-corp owner's spouse) to use pre-tax dollars to pay for medical expenses not covered by the health insurance (orthodontia, miscellaneous vision costs, etc.)

Thanks...

[Guest TaxLady]

Then those expenses are treated similarly to health insurance premiums paid by the S-corp for more than 2% shareholders. The benefits paid are deducted by the S-Corp, but also added on to the owners W-2 as compensation.

In the casse of health insurance (but not medical reimbursement payments) the shareholder can deduct a portion of the premiums as a self-employed health insurance deduction on their personal returns.