Fringe Benefit Exclusion from Compensation - Partner Medical Insurance

[Guest Holly Foster]

I have a plan that for purposes of calculating the plan profit sharing contribution uses a definition of compensation that is:

W-2 + deferrals - fringe benefits ("reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation and welfare benefits category")

This is an ASG with partners having their own S-Corp's and getting W-2 income. The partners pay from thier total after-tax income for their own medical insurance.

According to IRS Pub 15-B, health insurance is generally excluded from tax, except in the case of >2% S-Corp shareholders. So the insurance is taxed and included in Box 1 of W-2.

The question is do I have to subtract it as a "fringe benefit" when determining compensation for purposes of calculating the plan profit sharing contribution?

It may be a fringe benefit, but had they taken the same after-tax dollars and purchased health insurance elsewhere, they would get profit sharing contribution based on their full W-2 box 1 amount.

I have a client that needs this answer ASAP, and I have researched everywhere but cannot find anything definitive. Please help!

[EBDI]

Holly, Did you ever find an answer? I have a similar situation with a >than 2% s corp owner.