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Frequent Explorer *

S-Corp Owner's Health Insurance

If the s-corp owner is being reimbursed for health insurance of an amount monthly ($1500), and I put that amount in the payroll setup, the taxes increase to actually lower their paycheck net amount by $330. In the article it states "If you plan on including the entire S-corp insurance amount in a single paycheck, make sure that the other wages (salary, bonus, and so on) cover the withholding taxes calculated on the check." But how do I actually do that? Do I just increase his salary to get his net paycheck back to the amount before adding the insurance?

Also - does this mean that I need to cut a separate check for the $1,500, how do I categorize that? Health Insurance Expense?

14 Comments
Established Community Backer ***

Re: S-Corp Owner's Health Insurance

Reimbursement to a S-corp owner when he/she is the only employee is covered under IRS notice 2008-1 as identified herein https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

 

The reimbursement is taxable wages subject to income tax only and not FICA or FUTA.  It is included in W-2 in Box 1 but not Boxes 2 and 3. Adding it in paycheck as a regular (subject only to FWT) payroll item will likely trigger enough extra withholding on its own. If you treat it as a bonus the mandatory withholding rate is 25% and treatment as a bonus is not correct since bonus is subject to the other taxes whereas this premium reimbursement is not.

 

So to include it in a single paycheck but have enough taxes taken out set it up as a payroll item subject only to FWT (and probably state, local) and not as a post tax reimbursement.

 

If you set it up only as a post tax reimbursement you will have to manually override FWT on that paycheck PLUS manually override Box 1 on the W-2

Frequent Explorer *

Re: S-Corp Owner's Health Insurance

I don't understand your answer. The taxes come out automatically when I add it in payroll setup, there is nothing manual that I have to do. What I'm asking is how can I make sure the employee's net pay is what he's used to seeing? Do I just increase his salary? When I preview the paycheck, the $1500 doesn't show up, so I would cut a separate check for the reimbursement, correct?

QuickBooks Team

Re: S-Corp Owner's Health Insurance

Hi there, @CCurtsinger.

I appreciate you clarifying that for me. I'd be glad to provide additional insight into this S-Corp Owner's Health Insurance concern.

 

You'll have two options to get this sorted out. First, is the one that you've mentioned which is to increase your employees' salary then create a separate check for reimbursement. 

Second, you can void or delete the paycheck that you've created then run an payroll for Fringe benefits only. This allows you to create a special payroll reporting for S Corp health benefits.

 

Here's how:

  1. Select the Workers tab.
  2. From the Run Payroll drop-down, select Fringe benefits only.
  3. Select Yes, my business will pay the taxes. (By selecting this optionwe will record the amount of employee tax as a loan, you will need to enter a repayment amount as an Employee Tax Loan deduction on subsequent paychecks to recover the funds from the employee).
  4. Change the Adjustment Date if necessary.
  5. Select Preview Payroll.
  6. Review the Fringe Adjustment then select Submit Payroll at the bottom.

For complete details about this process, please check out this article: Add fringe benefits to an employees paycheck for Online Payroll.

 

Also, you can visits these articles below for your reference about how S-Corp Owners Health Insurance works in QuickBooks:

Please let me know if you need additional assistance with this concern. I'm always here to help. Have a great weekend!​​​​​​​

Established Community Backer ***

Re: S-Corp Owner's Health Insurance

It's right here: "the taxes increase to actually lower their paycheck net amount by $330."

 

You have to be paying the person At Least $300 gross, or there is not enough Gross available to withhold for taxes. A Paycheck cannot end less than $0.

 

"In the article it states "If you plan on including the entire S-corp insurance amount in a single paycheck, make sure that the other wages (salary, bonus, and so on) cover the withholding taxes calculated on the check.""

 

Do not add More Money to the paycheck and do not pay out separately. Make sure you understand the difference between Taxable Fringe and actual Taxable Addition.

 

If the Salary Gross is $1,800, then Obviously all taxes necessary can be deducted, including the extra $300 that results from the Company Contribution of Taxable Insurance taxable fringe that is the Additional Taxable $1,500.

 

But if an employee only has $500 Gross Salary, which already has taxes deducted from it, you have to be able to see there is another $300 that would have been Take Home, that is the taxes which will be deducted from the paycheck because of the Health Insurance taxable benefit.

 

And of course, as a Reimbursement (addition) vs Company Paid and taxable fringe benefit, you are already Increasing the takehome for real, so you Know that $300 can be deducted from that Additional $1,500 just fine.

Frequent Explorer *

Re: S-Corp Owner's Health Insurance

Hi @BettyJaneB,

I'm on the screen 'Run Payroll: Fringe Benefit Only' and the total pay is $0, and the S-Corp Ins. amount is entered for each employee at $816.54. I'm not sure why the total pay says $0. Shouldn't it show 816.54? I guess I'm not understanding how to actually pay the funds to the employee. The total pay should be $1,633.08 for the health insurance.

QuickBooks Team

Re: S-Corp Owner's Health Insurance

Hi there, @CCurtsinger.

 

Thank you for getting back into this thread. I can share some reasons why the Total Pay amount is showing $0 and how you can create payroll with your desired amounts.

 

When processing a 'Run Payroll: Fringe Benefit Only', there is no pay available to cover the employee's taxes which is why it's showing a zero amount. 

 

If you'd like QuickBooks to reduces the net pay with the fringe benefit, all you have to do is create a regular paycheck. Before that, make sure to set up S-Corp pay type. Since the Fringe Benefit is paid by the employer, it'll not be added on the total of the customer.

 

Here's how to create a regular paycheck:

  1. Click the Plus icon.
  2. Choose Payroll.
  3. Select a pay schedule and click Continue.
  4. Select the employee and review the Total Pay column.
  5. Click Preview payroll.
  6. Click Submit payroll.

That should do it. Keep us posted if you have additional questions about payroll. I'm here to answer them for you.

Frequent Explorer *

Re: S-Corp Owner's Health Insurance

Okay, If I process payroll as usual I see the S-Crop Ins. amount on the screen, but the amount that is going to be direct deposited is only the regular pay amount, it doesn't include the $1600 for the insurance. How do I get the employees their $816.65 each?

Established Community Backer ***

Re: S-Corp Owner's Health Insurance

You might be confusing Fringe Benefit "Company Contribution" as in, we Pay it for you, and have to report it so that is shows as taxable on your payroll and reports with a specific code in aspecific box on the W2. And Reimbursement, as in, we give you the funds because you paid for yourself already, which are a type of Taxable Compensation to you as Additional Taxable Pay, with a Pay Type that is reported in a specific box with a specific code on the W2.

 

Added to the Payroll details is not the same as also Added to the takehome amount.

Frequent Explorer *

Re: S-Corp Owner's Health Insurance

I think I understand now: 

 

So I’ve added the pay type and processed payroll and it shows the additional pay type amount but the employee doesn’t actually get anything in their paycheck...their paycheck however has more taxes taken out to make up for the extra $$ that they get for their reimbursement. So that part handles the tax liability and reporting for W2. 

 

Now I need to write a check to the employees for their reimbursement? This can’t be done direct deposit. 

 

Now since I’m doing the reimbursement once a month and they get paid twice a month, next payroll I’ll remove the s-Corp heath amount so it doesn’t ‘overtax’ them? 

QuickBooks Team

Re: S-Corp Owner's Health Insurance

Thanks for getting back to us, @CCurtsinger

 

Allow me to provide additional insight in this S-Corp Owner's Health Insurance concern.

 

Yes, you'll need to write a regular check for your employees' reimbursement so taxes won't be calculated for that amount.

 

Here's how:

  1. Select Workers from the left panel.
  2. Select the Employees tab.
  3. Choose Run payroll.
  4. Select the direct deposit icon at the right of the employee's name.
  5. Select Paper check.
  6. Enter the amount for the reimbursement.
  7. Finish the payroll and don't forget to print or write the paper check and give it to the employee.

I got here some helpful articles that you can refer to about this process:

Also, yes, you can manually remove the S-Corp Health Insurance amount when running on the second check of the month so it won't double the employees' tax.

 

This should get you on the right track @CCurtsinger. Keep me posted if you need additional assistance. I'll be here help you out. Have a good one!

Frequent Explorer *

Re: S-Corp Owner's Health Insurance

Thank you @BettyJaneB,

 

Okay! Got it. Once I added the reimbursement category and added the amount I was able to create another paycheck and skip the salary (since I already ran it). One of the employees was pulling taxes of about $40 (have no clue how that happened), so I edited that to 0. Next time, if I run payroll I can add the reimbursement amount with that same check/deposit?

Anonymous
Not applicable

Re: S-Corp Owner's Health Insurance

Hello again, @CCurtsinger.

 

I'm glad the steps provided by my colleague @BettyJaneB was helpful to you. 

 

Yes, you can add the reimbursement amount the next time you run payroll, and after assigning, make sure to check your accounting preference if it's posted to the right account.

 

Let me know if you have other questions about the reimbursement. 

 

You're always welcome to visit again in the Community if you need anything else. I'm here to help.

Frequent Explorer *

Re: S-Corp Owner's Health Insurance

@Anonymous

I just want to double check something. When I pull my profit and loss statement, I see the S-Corp Health Insurance sub-account, but it's a negative number. Is this correct?

 

I have the following:

S-Corp Health Insurance -1,633.08

Taxes                                    3,512.87

Wages                                 40,049.72

 

I'm thinking it could be because when I pull the report for 'WAGES' I see the $1,633.08 as a positive number, so the grand total for payroll expenses is correct and it's just showing as a negative number.

Established Community Backer ***

Re: S-Corp Owner's Health Insurance

There is no separate Reimbursement. Once again, I see that two different concepts are confused.

 

1. You add the Amount to their paychcek as a taxable addition of a specific type, such as Reportable Fringe for S Corp Shareholder, it Adds to the Gross, that gets taxed, and it Adds to the takehome. This is, "We paid You, because you paid your own Health insurance."

 

Or,

2. You add a Taxable item, but that the Value is taxed, the taxes reduce total takehome, and the added Gross is never part of takehome and there is no Reimbursement as follow up. This is, "We paid it for you as part of a company plan, and it has to be reported, and is taxable, to you. So it is part of the paycheck details, but you don't also get any Money from us directly for this."

 

 

This explanation: "I'm thinking it could be because when I pull the report for 'WAGES' I see the $1,633.08 as a positive number, so the grand total for payroll expenses is correct and it's just showing as a negative number."

 

Would be Option 2; elsewhere, perhaps in Health Insurance Expense, you also see the Positive from when you Paid the insurance company the premium for all the people covered and called it Expense, directly.

 

Positive $1,600 <== paid to Health insurer

negative $1,600 <== Taxed for the employee but not as a Liability to pay out (already paid out)

and Positive $1,600 <== reported as taxed for the employee as wage expense = part of payroll

That Negative entry could have been assigned to the Health Insurance expense account or the same Wage account as you show the Positive, to show, "This is a Wash."

= only One amount of $1,600 is Company Expense.

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