Background: SCorp with greater than 2% shareholder as employee
Problem: Wondering if taxation for payroll items are set up incorrectly even though I used the QB default set up. Help needed to clarify!
Are not SIMPLE IRA Employee taxed SS and Medicare but not Fed. Withholding and S. Corp Med. Premium taxed on Fed. With. and not SS and Medicare?
1. As I understand it.... There should be tax on the Employee’s SIMPLE IRA contribution for SS and Medicare (but not Fed. Witholding). When I check this against the payroll item SS taxes or Medicare, it doesn't give me an option to check SIMPLE IRA -Employee contribution as taxable compensation subject to SS/Medicare tax. Why?
2. S Corp Medical Premium -- Are not exempt from Fed. With. so why is this automatically checked as default by QB? Shouldn't S Corp Medical Premiums have the SS and Medicare checked instead and not Fed Withholding since they are affected by this payroll item? (Doesn't make sense as to why defaults for both SIMPLE IRA Employee and S Corp Medical Premium have Fed. Withholding checked --- ones applies but the other does not.)
You can change the setup in QuickBooks, Nikkiszoo.
For S-Corp insurance items, if the shareholder is using the same insurance program that is offered to the employees, then the cost of their premiums is only taxable to FIT and SIT. If they're using a separate plan, then the cost of their premiums will be taxable to FIT, FICA, Hawaii UI, FUTA, SIT, SDI and SUI.
In QuickBooks Desktop, the default setup of the S-Corp and Simple IRA is only taxable to Federal and State Withholding.
To change the setup, you can follow these steps:
Click Lists at the top, and then select Payroll Item List.
Find the S-Corp or Simple IRA item from the list.
Double-click to open it.
Click Next three times until you reach the Taxes section.
Check the taxes that should affect the S-Corp or Simple IRA.
Click Next, and then Finish.
You can also refer to these articles for more details:
Thank you for those links. But I need further clarification;
In the first link regarding S corp med. payroll, for the custom set up for 2% shareholder offered the same insurance as all employees, #8 says it says "In Taxes, do not make any changes and click Next." On mine payroll item for S Corp Med Prem. Fed. Withholding is checked by default (I assume state is not an option since I live in state without SIT.) So that means that S Corp Med is except from taxation on Federal Withholding and everything else that is not checked IS taxed?
According my research, Fed. Withholding is to be included in taxation of this item and SS and Medicare, unemployment are NOT.
See "Treating Medical Insurance Premiums as Wages"
Therefore, should not SS, Medicare, unemployment be checked and NOT federal withholding?
On the other hand, for the 2nd link regarding Simple IRA Employee, says:
"Place a checkmark next to any item(s) in the Payroll Item column that will be calculated after this deduction is taken. For example, if you check Federal Withholding, federal withholding tax will be calculated on the adjusted (after deduction) gross wages and click Next."
My payroll item shows Fed. Withholding is the only thing checked. I assume this means that all taxes will apply except Fed. Withholding which will be calculated after this item is deducted so I believe this is set up correctly.
Lastly my payroll item for medicare taxes as well as my payroll items for SS says "Select the items subject to Medicare Tax" but it does not even give me an option to check SIMPLE IRA Co EMPLOYEE. Please explain why.
Let me join this thread and answer your payroll questions, Nikkiszoo.
We can only walk you through on setting up payroll items in QuickBooks Desktop. I would recommend consulting your accountant about the medical insurance premiums should be taxed.
With regards to your second question, only the Federal Withholding will be calculated since that's the only one that's checked.
I also went to set up a Simple IRA Company match and it gives me an option to check both Social Security and Medicare taxes. Let's create a new company contribution and follow the Custom Setup instructions so you can customize which taxes to check.
You can also contact or Payroll Support Team if you can't still check the Medicare taxes. They have additional tools that can double-check and help with your payroll setup. Here's how: