Health Insurance Purchased in Name of Shareholder

I'll help you with setting it up, Sffdib.

The cost of insurance is considered part of the employee's total compensation, even if the employer pays the premium. When you set up the item, we recommend using the EZ setup. The tool will select the payroll item taxation for you. For more information, please check this reference on how to set up S-corporation medical payroll items.

Once done creating the item or entering the data, you'll have to create another item to reimburse the employee. Here's how:

1. Click Lists, then go to Payroll Item List.
2. Click Payroll Item, then select New.
3. Select Custom Setup, then click Next.
4. Select Addition, then click Next.
5. Enter a desired name, then click Next.
6. Select an expense account, then click Next.
7. Select the Tax tracking type, then click Next.
8. Click Next again, then click Finish.

When you create a paycheck, add the item in the Other Payroll Item section. Or, you can add the item in the employee's profile, so it will automatically appear when creating the transaction. 

If you have more questions, please don't hesitate to get in touch with us. 

Your instructions are missing some steps.

Hello, @sffdib.

Allow me to share information about the process provided by my colleague above on how to reimburse employee in QuickBooks.

The instructions above will guide you where to input the correct information. The missing steps need some information that you will input personally.

For detailed steps about the process that my colleague provided above, you can check this article: Create a non-taxable reimbursement payroll item.

Our Help articles also cover common questions about QuickBooks Desktop. You can find in this link the recommended, most viewed, and most recent articles you can use while working with your account.  

Please don't hesitate to comment below if you need further assistance. I'm just around to help. Stay safe always.

Per IRS Notice 2008-1, a 2-percent shareholder would be allowed an above-the-line deduction even if the heath insurance policy is purchased in the name of the shareholder. The employer can reimburse the employee (shareholder) the insurance cost. My understanding is the amount is not subject to income tax to allow the same deduction as it allows a sole proprietor (Sch C). So, the amount will not show in box 1 W2, but will show in box 12 W2. The instruction that you sent me shows how to add it as income, it does not show how to tax it, and it says not to show it on the w2.

Hi there, @sffdib. 

Thanks for actively responding. Allow me to step in and provide additional insights about an employee who is a sole shareholder of S-corp, and personally paid for his health insurance. 

As per IRS, 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 don't treat the benefit as a reduction in distributions to the 2% shareholder. 

See article: https://www.irs.gov/pub/irs-wd/[removed].pdf. 

To make sure your books are accurate, I'd recommend consulting with a tax expert or an accountant to guide you on how to reimburse your employee. 

For future reference, you may also want to read these following topics from our resources: 

• Fringe benefits and tax forms. It helps you learn about how this benefit affects employee's tax forms. 
• Create taxable fringe benefits payroll items. It has a step-by-step guide on how the fringe benefit will be paid to the employee based on the scenario listed in this article. 

Feel free to message again should you have more concerns about anything else. We're always delighted to assist. 

Your link to the IRS document is broken. The question was about setting up in QB. You already have instructions posted under this post: https://quickbooks.intuit.com/learn-support/en-us/insurance-and-medical-benefits/how-to-set-up-s-cor... for different scenarios

but it does not show setup for Health Insurance Purchased in Name of Shareholder.

Hi there, sffdib.

It looks like my colleague is referring to this link: https://www.irs.gov/pub/irs-pdf/p15b.pdf.

Also, QuickBooks only supports the following two scenarios when it comes to setting up S-Corp Insurance items:

• If you're a 2% shareholder and offer the same medical insurance plan to all your employees

• If the 2%-shareholders have a different plan from the other employees, or do not offer the plan to their employees at all

This is the reason why it was recommended to reach out to an accountant, especially if the scenario is other than what's mentioned in the article. 

Visit us again if you need anything else.