Compensation and Fringe Benefits Paid by Pass-Through Entities: Reporting and Tax Issues

Health Insurance Premiums, Retirement Contributions, Auto Allowances, and Other Perks

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, October 7, 2020

Recorded event now available

or call 1-800-926-7926
Course Materials

This course will explain reporting and tax obligations for fringe and other benefits paid to shareholders, partners, and employees of pass-through entities (PTEs). The panel will clarify when and where to report these benefits, which benefits are deductible by the PTE, and how to calculate and tax these perks.

Description

Most employees receive fringe benefits. Determining whether they are taxed, how they are taxed, and how to report these benefits can be perplexing, and even more so for PTEs and their advisers. Benefits provided to partners are sometimes reported as guaranteed payments (i.e., compensation) on a Schedule K-1 and other times are considered non-taxable perks, and the tax treatment does not always align with the same benefits provided to employees.

Some benefits provided to partners are deductible by the partnership, while others are reported as distributions to the individual partners who may claim a deduction on their personal return. Health insurance premiums, for example, are reported as guaranteed payments to the partner and are generally deductible by the partnership. Unlike other fringe benefits, the partner is allowed a deduction for the medical expense on his individual Form 1040.

At the same time, health insurance payments for greater-than-2% S corporation shareholders are reported as income to the individual shareholders on their Form W-2 (but not subject to FICA or FUTA) and are deductible as salary payments by the S corporation and typically may be deducted by the shareholder. Equally confusing is reporting retirement plan contributions made by partners and the partnership, including determining self-employment tax on the applicable portion. Advisers and owners of PTEs need to understand how to accurately report retirement, fringe benefits, and other payments to shareholders, partners, and employees so that the entity and owners properly report and remit the corresponding tax due.

Additionally, all or part of the deduction for certain compensation and fringe benefits may be disallowed regardless of whether the benefit is provided to an employee, partner, or shareholder.

Listen as our panel of experts discusses partner versus employee classification considerations, reviews reporting and withholding requirements for various compensatory benefits paid by PTEs, and provides additional considerations that can affect a PTE’s tax obligations and opportunities.

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Outline

  1. Pass-through entities and dual status
  2. Distinctions in reporting and withholding
  3. Fringe benefits
  4. Compensatory Awards
  5. Other tax considerations

Benefits

The panel will review these and other critical issues:

  • How to calculate and report auto allowances paid to employees or owners
  • When retirement contributions paid by PTEs are deductible
  • How to report health insurance premiums with respect to partners and owners
  • Identifying common errors in granting profits interests or options
  • Tax provisions and deduction limitations that may be newly applicable to PTEs

Faculty

Katz, Beverly
Beverly Katz
Director, Washington National Tax, Passthroughs
KPMG

Ms. Katz's practice focuses on transactional tax planning, including partnership acquisitions, dispositions and...  |  Read More

Madden-Erinn
Erinn Madden

Managing Director, Washington National Tax, Compensation and Benefits
KPMG

Ms. Madden is a compensation and benefits attorney with extensive experience advising clients on global compensation...  |  Read More

Rhodes, Carly
Carly Rhodes

Senior Manager, Washington National Tax, Compensation and Benefits
KPMG

Ms. Rhodes specializes in the areas of qualified and nonqualified plans, executive compensation, equity arrangements,...  |  Read More

Stecher, Terri
Terri Stecher

Director, Washington National Tax, Compensation and Benefits
KPMG

Ms. Stecher has more than 15 years of experience providing technical support in the areas of executive compensation,...  |  Read More

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