Yes. A Coeur d’Alene S corporation cannot provide as many tax-free fringe benefits to shareholders-employees as a traditional “C” corporation. However, a Coeur d’Alene S corporation still provides more tax-free benefits to shareholder-employees than an Idaho LLC taxed as a sole proprietor or partnership. Before you get excited about the fringe benefits of an Idaho S-Corporation, beware that there is also a special rule that applies to shareholders that own more than 2% of the company.
The Two-Percent Rule
Idaho S-Corporations shareholder-employees lose tax-free fringe benefits when they own 2 percent or more of the company.
According to this law an Idaho S-Corporation cannot deduct these payments as business expenses and must treat the payments as taxable W-2 wages paid to the shareholders.
- Cost of group term life insurance coverage up to $50,000
- Contribute to accident and health plans
- Reimburse for meals
- Lodging furnished for the convenience of the corporation
- Establish cafeteria plans
- Contribute to employee health savings accounts
- Reimburse for the cost of qualified transportation
- Adoption expenses
- Moving expenses
Exceptions to the Coeur d’Alene S Corporation 2% Rule
Shareholders that own more than 2% do not lose certain fringe benefits include, payments to pension and profit-sharing plans, compensation for injury, reimbursements for educational assistance, dependent-care assistance, qualified employee discounts, working condition fringe benefits, qualified retirement planning services and on-premises athletic facilities.
- Idaho S corporation shareholder-employees can receive retirement plan benefits based on their earned, W-2 income and not on their shares of the corporation profit.
- pension plans to employees, including shareholder-employees.
- A working condition fringe benefit is an expenditure that would be deductible as an employee business expense if directly paid by the employee. This could be training or education to further their skills for the company.
- Idaho S Corporations can provide a vehicle to a shareholder-employee as a tax-free fringe benefit if only used for business purposes. If using for personal reasons, the fringe benefit turns into taxable income.
- A de minimis fringe benefit refers to small, hard-to-track benefits that an employee receives. This could be coffee, water, snacks or meals in the workplace.