Apply S-Corp Medical at Year-end for Corporate Officers

January 1, 2015

10:29 PM

This article assumes that you are using QuickBooks (desktop) and QuickBooks Enhanced Payroll. QuickBooks Payroll allows for two different methods by which you can track Medical Health Premiums for S-Corp Officers. You may have been processing S-Corp Health Insurance premiums using a Scorp Pd Med Premium Payroll Item all year long, but many S-Corps will choose to simply apply the S-Corp Health Insurance premiums they have been paying to an officer’s payroll at year end. This article discusses the method for making these year-end payroll adjustments......

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Editor's note and Disclosure:

While we believe, based upon a review of the applicable provisions by our consulting tax advisor, the controlling provisions of the tax code in this situation are:

Exception for S corporation shareholders. Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder.

S corporation shareholders. Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes.

This article is presented for information purposes only. If you are unsure how the item discussed in this article should affect tax forms or taxability; you should consult with your own accountant and/or tax advisor for assistance.

Comments (2)

Comment Feed

QB 2014/2016 Health Ins adjustment

If health insurance are subject to FIT/SIT, QB is NOT taxing it even though it's been checked 'on' in the settings.

Generally, the health ins premium is 'subject' to tax on Form 1040 but it's then deducted below on the same page, so it's not subject to tax. That applies to state returns.

Is QB 'correct' in NOT taking out any FIT/SIT?

Also, depending on how it's set up...

1. The liability account should be.... Contra account to the 'Insurance expense' to where the health insurance payments were categorized so it offsets the latter.

2. Expense account should be...
- I've seen 2 methods of categorization online at various online accounting/tax websites about this matter that it's confusing....
a) Wage expense - makes sense since health insurance is part of wages

b) Insurance expense - this negates #1 above but it also makes sense since 'some' people may want to 'track' the health insurance.
- The problem with this method is that the W-2 box 1 WILL have the health insurance amount so the Wage Expense account 'should' MATCH to the W-2.
- Now... the tax software entry is tricky... depending on which one the tax prof uses...
... One can use 2(b) but it won't match the W-2 and there's also a place to put the health insurance to the shareholder on a separate line. The issue is that the Wage amount will Not match the W-2 so that's a matching error there.
... If you use #1, then you'll need to leave a note on the K-1 on the health insurance amount or leave a note, possibly, alerting the shareholder of the health insurance amount on box 14, W-2.

Thanks!

MC more than 8 years ago

S-Corp Medical

We just worked through Option 1 today, using QB Desktop 2014. QB would not allow a zero check so we modified the above instructions by added .01 to wages. If we then deducted .01 from SIMPLE contributions then it allowed a zero check.
The other change we made was expensing the Insurance amount to Officers Payroll Expense instead of Payroll Expense. It appears all of the Year-end forms, Fed and State are correct!

Fay Uraynar more than 10 years ago