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Set up an S-corp medical payroll item for your corporate officers

by Intuit•29• Updated 1 month ago

Learn how to set up and track S-corp medical contributions in QuickBooks Online Payroll and QuickBooks Desktop Payroll.

S corporation medical insurance is a noncash fringe benefit provided to shareholders owning 2% or more of the corporation. 

You can set up an S-corp medical payroll item in QuickBooks Payroll. And report them on your employees paychecks and tax forms. To learn more about S-corp insurance, check out IRS Notice 2008-1.

Step 1: Determine the insurance plan you offer to your 2% shareholders 

The insurance you offer to your 2% shareholders and the rest of your employees determines the tax treatment for S-corp insurance. It will also determine if you can set this up in your payroll product, and how to do it.  

  • If the 2% shareholders have the same medical insurance plan that’s offered to all your other employees, the plan is subject to federal and state withholding. Exempt from Social Security, Medicare, and FUTA. 
  • If the 2% shareholders have a different plan from other employees or don't offer an insurance plan to employees at all, the plan is fully taxable. This type of plan is only supported in QuickBooks Desktop Payroll.

Step 2: Set up your S-corp medical insurance item

For a better experience, open this article in QuickBooks Online. Launch side-by-side view Open this link in a new window

Note: You can only set up the S-corp item for shareholders that have the same medical plan offered to all other employees.
  1. Go to Payroll, then Employees.
  2. Select your employee.
  3. From Pay types, select Start or Edit.
  4. In Additional pay types, select S-corp Owners Health Insurance.
  5. Enter an amount. Or leave it blank, then enter the amount as you run payroll.
  6. Select Save.

There are 2 tax tracking types for S-corp, depending on the plan you offer to your 2% shareholders and other employees (from Step 1: Determine the insurance plan you offer to your 2% shareholders). Both report in Box 14 of your employee’s W-2.

  • SCorp Pd Med Premium is used when the 2% shareholder offers the same medical insurance plan to all employees. This is only taxable to federal and state withholding. Exempt from Social Security, Medicare, and FUTA.
  • Fringe Benefits used when the 2% shareholders have a different plan from other employees or don't offer the plan to employees at all. This is fully taxable.

The items you need for S-corp depend on when you're reporting the S-corp.

Step 1: Set up a Company Contribution payroll item

  1. Select Lists, then Payroll Item List.
  2. Select the Payroll Item ▼ dropdown, then New.
  3. Select Custom Setup, then Next.
  4. Select Company Contribution, then Next.
  5. Enter the name of the item, then Next.
  6. Select the name of the agency (or add it) and the account number.
    • In the Liability account field, select the account you’ll use to track company contributions. And in the Expense account dropdown, select the expense account that you want to track the item. Select Next.
  7. In the Tax Tracking Type window:
    • Select SCorp Pd Med Premium for the 2% shareholder that has the same medical insurance plan to all employees.
    • Select  Fringe Benefits if the 2% shareholders have a different plan from other employees or don't offer the plan to employees at all.
  8. Select Next three times, then Finish.

Step 2: Add the item to the employees profile

  1. Select Employees, then Employee Center.
  2. Double-click your employee’s name.
  3. Select Payroll Info.
  4. In the section for Additions, Deductions, and Company Contributions, under Item Name, add your S-corp payroll item.
  5. In the Amount column, enter the amount per paycheck to take out. In the limit field, enter the total premiums for the whole year.
  6. Select OK.

Step 1: Set up an S-corp Company Contribution item

You'll need to set up 3 payroll items to create a zero net paycheck and account for the taxes.

  1. Go to Employees, select Payroll Item List. Then select New Payroll Item. 
  2. Select Custom Setup, then Next.
  3. Select Company Contribution, then Next.
  4. Enter S-Corp Owners Health as the payroll item name, then select Next.
  5. Select Payroll Expenses, then Next.
  6. Select SCorp Pd Med Premium as the tax tracking type, then Next.
  7. Select Next twice, then Finish.

Step 2: Set up an S-corp adjustment item

  1. From your Payroll Item list, select New Payroll Item. 
  2. Select Custom Setup, then Next.
  3. Select Addition, then Next.
  4. Enter S-Corp Adjustment as the payroll item name, then select Next.
  5. Select Payroll Expenses, then select Next.
  6. Select Compensation as the tax tracking type, then select Next.
  7. Select Next twice, then Finish.

Step 3: Set up an employee advance addition item

  1. From your Payroll Item list, select New Payroll Item. 
  2. Select Custom Setup, then Next.
  3. Select Addition, then Next.
  4. Enter Employee Paid Tax advance as the payroll item name, then select Next.
  5. Select Payroll Expenses, then select Next.
  6. Select None as the tax tracking type, then select Next.
  7. Select Next twice, then Finish.

Step 4: Add the item to the employees profile

  1. Select Employees, then Employee Center.
  2. Double-click your employee’s name.
  3. Select Payroll Info.
  4. In the section for Additions, Deductions, and Company Contributions, under Item Name, add your S-corp payroll item.
  5. In the Amount column, enter the amount per paycheck to take out. In the limit field, enter the total premiums for the whole year.
  6. Select OK.

Step 3: Report S-corp contribution on your paychecks

 Now it’s time to run your payroll with an S-corp medical insurance item on it.

For a better experience, open this article in QuickBooks Online. Launch side-by-side view Open this link in a new window

You can include the S-corp contribution as you run your scheduled payroll, or create a fringe benefit paycheck.

  1. Go to Payroll, then Employees.
  2. From the Run payroll ▼ dropdown, select Fringe benefits only.
  3. Choose who will pay the taxes, then Continue:
    • Yes, my business will pay the taxes
    • No, my employee will pay the taxes
  4. Select or add a Pay date.
  5. Select your employee, then enter the amount for S-corp.
  6. Preview and submit payroll.

If you use QuickBooks Desktop Payroll, and your shareholders have a different plan than the rest of your employees, and they won't be paid the rest of the calendar year, you'll need to create a zero net paycheck.

  1. Create an unscheduled payroll.
  2. Select Open Paycheck Detail on your shareholder paycheck.
  3. Remove any earnings items. 
  4. From Other Payroll Items, select S-Corp Adjustment under the item name. Enter the amount 0.01.
  5. In the next line, select the S-Corp company contribution item. Enter the total amount of the premiums paid.
  6. In the next line, select the S-corp Adjustment item again. Enter the amount of -0.01.
  7. In the next line, select the Employee Paid Tax Advance item. Enter the total check amount in the employee summary box. The net amount should now be 0.00.
  8. Select Save & Close.
  9. Repeat these steps for any of your other shareholders if needed.
  10. If you use QuickBooks Desktop Payroll Assisted, send the check(s) to Intuit. 

Track your S-corp contributions

If you need to track S-corp contributions, check out Run payroll reports in QuickBooks Online Payroll and QuickBooks Desktop Payroll.

Frequently asked question

What is an "Employee tax loan"?

After creating an S-Corp check and indicating that the employee pays the taxes, the payroll system places an Employee Tax Loan on the check if there aren't enough wages to cover the taxes.

Employees must pay the loan amount back completely by April 15 of the following year to avoid tax implications.

You can choose to deduct the Employee tax loan as a lumpsum amount or split it over several periods. To edit the amount:

  1. Go to Payroll, then Employees.
  2. Select your employee.
  3. From Deductions & contributions, select Start or Edit.
  4. Select Edit ✎ next to Employee Tax Loan.
  5. Enter the Amount per paycheck.
  6. Select Save, then Done.
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