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Level 2

S Corp Payroll, Health, Retirement

I keep doing my research and only end up with more questions. I'm looking for either answers or helpful links about setting up an S Corp Officer on payroll. We're an LLC that just elected S Corp status this year. In previous years, the owner would receive checks every other week, but not through payroll. In my research I've just found out that the working owner of an S Corp has to be on the payroll, making reasonable wages. I got a little help on figuring out how to do the owner's final paycheck this year so that his checks throughout the year will count as salary and the FICA will be taken out of his final paycheck. (1) Do I set up the S Corp Officer (owner/employee) the same way as any employee on payroll?

 

Then there's the health insurance and retirement that I can't figure out or quite understand. I've read that S Corp officers have a certain health benefit for 2% shareholders if the corporation offers the same health insurance to their employees. I'm wondering (2) if this is a specific kind of insurance or if our current group health plan will qualify, since the owner already uses the same health insurance as the employees? And (3) if we can use our current plan, how do I categorize the premiums that the business pays for throughout the year? And (4) how do I account for the premiums on the owner's final paycheck?

 

And since there's a special health insurance benefit I was wondering about the owner's retirement. (5) Does this need to be recorded on the paychecks and how? It's usually just categorized as an owner's draw. 

 

If there are any other rules or changes for electing S Corp that I'm missing please let me know or provide any links that would be helpful. Thanks for helping!

3 Comments
QuickBooks Team

S Corp Payroll, Health, Retirement

Hello there, @SG91.

 

Thanks for posting to the Community. Let me share some information on how you can set up S-Corp for payroll.

 

Yes, you're correct to set up S Corp the same way as any employee on the payroll.

 

You'll have to create the payroll item on the owner/employee's profile for it to reflect on your W-2 forms automatically.

 

Here's how to set up an S-corporation pay type:

  1. Go to Workers from the left menu.
  2. Select Employees.
  3. Select the employee's name.
  4. Click the Edit (Pencil) icon beside Pay.
  5. In section 3, select the Edit (Pencil) icon.
  6. Maximize Even more ways to pay employee and then select S-Corp Owner's Insurance.
  7. Select Done.

 

This link will help you know more details about setting up an S Corp that includes adjustments as well when there is prior payroll you need to correct: Set up S-Corp Owner's Health Insurance.

 

Yes, when the owner already uses the same health insurance as the employees, they will need to qualify first before setting this kind of pay types.

 

I'll add this article for more details:

Please know that I'm always here to help you if you have any other payroll concerns, then comment below. Wishing you and your business continued success!

Level 2

S Corp Payroll, Health, Retirement

Thank you for those helpful links. As I set up the S Corp owner as an employee I'm wondering if he would claim exempt on his W-4? He's been paying estimated taxes every quarter and I'm not sure how that will change in the new year with the tax classification change to S Corp. 

QuickBooks Team

S Corp Payroll, Health, Retirement

Thanks for getting back to us, @SG91.

 

S corporations are required to pay reasonable compensation to a shareholder-employee in return for services they provide to the organization. The pay they received is treated as wages and these are subject to federal employment taxes. The exemptions on their W-4 will depend on what other taxes they have. With this, I'd recommend consulting a tax professional or financial adviser. This way, you're able to set-up the shareholder-employee's tax exemptions accordingly.

 

Once you've confirmed any tax exemptions in their W-4, you can refer to this article on how to view and update them in your QuickBooks Online (QBO) Payroll account: Employee payroll tax exemptions.

 

Additionally, here are some IRS helpful articles that'll further guide you in defining shareholder-employee taxes:

 

I'm also adding this article to learn more about the supported pay types and deductions in QBO Payroll: Supported pay types and deductions explained. It also explains how they impact your federal taxes and forms.

 

Please know that you're always welcome to comment below if you have other concerns or follow up inquiries about managing an S Corporation business and employee taxes in QBO. I'm just around to help. Take care.

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