Section 3401(a) Compensation of S Corporation Shareholder/Employee

[Oh so SIMPLE]

I'm working on a plan that defines compensation for profit sharing allocation purposes by reference to compensation that is subject to payroll withholding, i.e., IRC section 3401(a). Generally speaking, Form W-2 Box 1 amount.

The sponsoring employer is an S corporation. The sole stockholder is also an employee of the S corporation.

Now that the value of health insurance provided to the S shareholder/employee must be included in Form W-2 Box 1 amounts for S shareholders/employees, is the value of the health insurance included in the S shareholder/employee's compensation for profit sharing allocation purposes?

[Oh so SIMPLE]

BUMP--Anyone know the answer to this?

[PensionPro]

Let's leave the W-2 out of this. 3401(a) wages are remuneration for services performed including the cash value of remuneration and benefits paid in non-cash form. Sections 3401(a)(1) through (a)(23) list the specific exceptions. Is the value of the health insurance one of the exceptions?

[Oh so SIMPLE]

But IRC section 3401(a)(21) excludes "any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 106(b)." The problem is that for the S Corp shareholder/employee is that the payment is not excluded from his or her taxable income, but is included and then deducted.