Alex, yup, the S corp home office deduction works similarly for a renter. The renter includes a percentage of the rent in her or his home office deduction though.

In comparison, the homeowner includes a percentage of the mortgage interest, property taxes, and depreciation in her or his home office deduction.

Hi Fred,

So you have located the right answer, though the actual source is IRS notice 2008-1. But essentially, the IRS says add health insurance paid on behalf of shareholder-employees to box 1 of the W-2. The calculations to determinate whether the self-employed health insurance deduction works get made on the person’s 1040.

Also, the wages aren’t subject to payroll taxes… thus they don’t get added to Social Security wages or Medicare wages.

As frequently happens, I believe I found my own answer. In the IRS pub:
https://www.irs.gov/pub/irs-pdf/iw2w3.pdf

Box 1—Wages, tips, other compensation. Show the
total taxable wages, tips, and other compensation that you
paid to your employee during the year. However, do not
include elective deferrals (such as employee contributions
to a section 401(k) or 403(b) plan) except section 501(c)
(18) contributions. Include the following.
5. The cost of accident and health insurance
premiums for 2%-or-more shareholder-employees paid by
an S corporation.

I was also unsure of how to treat my HSA contributions. It seems that it’s either includable which means Box 1 3 and 5, or if it’s excludable, which a contribution paid directly by the employer seems to be, then it’s only recorded in Box 12 with code W.

It’s somewhat on topic because it does relate to treatment of health insurance payments.

I noticed that in your 5 minute payroll monograph (thank you for that and all the other monographs you’ve put out. Extremely helpful!) you complete forms 941 and W2 by including the base wages paid + health insurance paid by the employer. To make it concrete on form 941 if you get 10K in wages in the quarter and 2K in insurance costs paid, then you’d record $12k in line 2 “Wages, Tips, and other compensation.”. If this arrangement repeated all year long, then by the time you filed the annual W-2 it would record $48K (12K for each quarter) in Box 1 and then Box 12 would have $8k annotated with code DD.

I’m confused because in all the guidance I see everywhere else and in the IRS pubs, it indicates that Box 1 should exclude any pretax benefits. In the example above it seems the recommendation would be $40k in box 1 and then $8k recorded in Box 12 using code DD.

Can you help me understand this discrepancy? It seems like in this post above you may be hinting at a difference in how specifically an S corp treats these payments vs another structure. Is that right or is it something else?

The employer pension deduction (so the match) appears on 1120S return and so isn’t an adjustment for the “net” QBI on the 1040 return. I don’t think anyone needs to worry about that.

And I don’t think right now we worry about anything other than what’s in the draft instructions…

But channeling the “logic” of the IRS, one can come up with other crummy little arguments for all sorts of adjustments. E.g, saying, well, if the employee elective deferral money comes from the S corporation, maybe taxpayers should have to adjust for that too…

Or one might argue some sole proprietorship using her or his business profits to fund an IRA needs to adjust for that since the IRA deduction vaguely connects to the business income…

But again, right now, I think we only worry about the stuff specifically mentioned in that quoted language…

Does this mean an S-Cor owner with a qualified plan would have to include the contributions in plan for the QBI or am I reading it incorrectly? Please, provide clarification for Sec 404 for what would have to be included.