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Intuit

How to set up S-corporation medical payroll items

With Intuit Online Payroll, QuickBooks Online Payroll, and QuickBooks Desktop Payroll, you can set up and record your S-Corp Insurance items.

According to IRS Notice 2008-1, S-corporation medical benefits are provided to employees that are also shareholders owning 2% or more of the corporation is considered a non-Cash Fringe benefit.

For tax purposes, the cost of the insurance is considered part of the employees' total compensation even when the employer pays the premium.

When setting up an S-corporation medical payroll item, we recommend using EZ Setup. This tool will choose the taxation of your payroll item for you.

If you disagree with the default type, or are unsure how the item should affect tax forms or its taxability, reach out to your accountant/tax advisor for assistance.

Learn how to set up S-corporation medical payroll items based on your employee packages:

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

  1. Select List and then Payroll Item List.
  2. On the Payroll Item List, select Payroll Item, and then New.
  3. Select EZ Setup, and then  Next.
  4. Select Insurance Benefits, and select Next.
  5. Select S Corp Medical, and select Next until Finish.
Note: This will set up a Company Contribution Payroll Item that will tax the amount but not include it in the employee's Net pay. The tax tracking type typically used for this payroll item is SCorp Pd Med Premium. EZ Setup applies this tax tracking type by default, and this item will show on W-2s as "SCorp Med Premium." If you disagree with the default type, or are unsure how the item should affect tax forms or its taxability, consult with your accountant/tax advisor for assistance.

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

  1. Select Lists and then Payroll Item List.
  2. On the Payroll Item List, select Payroll Item and then New.
  3. Select EZ Setup, and select Next.
  4. Select Other Additions, and select Next.
  5. Select Taxable fringe benefits, and select Next until Finish.

This will set up a Company Contribution payroll item that will tax the amount but not include it in the employee's net pay.

Note: The tax tracking type typically used for this payroll item is Fringe Benefits. EZ Setup applies this tax tracking type by default, and this item will show on W-2s as the name of the payroll item. If you disagree with this default type, or are unsure how the item should affect tax forms or it s taxability, consult with your accountant/tax advisor for assistance.

You may also use a customer setup:

  1. Select Lists and select Payroll Item List.
  2. At the lower left of the Payroll Item List, select Payroll Item and then New.
  3. Select Custom Setup, click Next.
  4. Select Company Contribution, click Next.
  5. Enter a name, such as S-Corp Medical Insurance , and select Next.
  6. In Agency for company-paid liability you can leave the fields as they are and click Next.
  7. In Tax tracking type choose SCorp Pd Med Premium and select Next.
  8. In Taxes, do not make any changes and select Next.
  9. In Calculate based on quantity, leave the default set to Neither, click Next.
  10. In Default rate and limit, leave the fields as blank, select Finish.

Note: The SCorp Pd Med Premium tax tracking type will show on the W-2s as "SCorp Med Premium". If you disagree with the default type, or are unsure how the item should affect tax forms or its taxability, consult with your accountant/tax advisor for assistance.

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

This will set up a Company Contribution payroll item that will tax the amount but not include it in the employee's net pay.

  1. Select Lists and Payroll Item List.
  2. On the Payroll Item list, select Payroll Item and then New.
  3. Select Custom Setup, and then Next.
  4. Select Company Contribution, and then Next.
  5. Enter a name, such as Taxable Fringe Benefits, and select Next.
  6. In Agency for company-paid liability, you can leave the fields as they are and select Next. In Tax tracking type choose Fringe Benefits, and then select Next.
  7. In Taxes, do not make any changes and select Next.
  8. In Calculate based on quantity, leave the default set to Neither, and select Next.
  9. In Default rate and limit, leave the fields as blank, select Finish.

Note: The Fringe Benefit tax tracking type will show on the W-2s as the payroll item name. If you disagree with the default type, or are unsure how the item should affect tax forms or its taxability, consult with your accountant/tax advisor for assistance.

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