How to set up S-corporation medical payroll items
PrintOverview
According to IRS Notice 2008-1:
Health insurance (S-corporation medical) benefits provided to shareholders owning 2% or more of an S corporation who are also employees of the corporation are a non-Cash Fringe Benefit. The cost of the insurance premiums is considered part of the employee's total compensation for tax purposes, although the employer pays the premium.
If the shareholders participate in the same insurance program that is offered to all other employees, the cost of their premiums will be taxable only to FIT and SIT.
If the shareholders participate in a separate plan from the rest of the employees, then the cost of their premiums will be taxable to FIT, FICA, Hawaii UI, FUTA, SIT, SDI and SUI.
Assumptions
You have an active, up-to-date version of QuickBooks.
Expected Outcome
You can add S-corporation medical payroll items to paychecks.
Details
To set up an S-corporation (S-Corp) medical payroll item choose the option that applies to your corporation:
If the plan is offered to all employees:
If the plan is offered to all employees - EZ Setup (recommended method):
- Access the Payroll Items.
- QuickBooks Pro and Premier: From Lists on top menu bar, click Payroll Item List.
- QuickBooks Simple Start: Click Payroll on the top menu bar, select Setup and Maintain, choose View/Edit Payroll Items.
- Create a new Payroll Item:
- QuickBooks Pro and Premier: Select Payroll Item, click New.
- QuickBooks Simple Start: In the Related Activities section, choose Add Payroll Items.
- Select EZ Setup, click Next.
- Select Insurance Benefits, click Next.
- Select S Corp Medical, click Next until Finish.
If the plan is offered to all employees - Custom Setup:
- Access the Payroll Items.
- QuickBooks Pro and Premier: From Lists on top menu bar, click Payroll Item List.
- QuickBooks Simple Start: Click Payroll on the top menu bar, select Setup and Maintain, choose View/Edit Payroll Items.
- Create a new Payroll Item:
- QuickBooks Pro and Premier: Select Payroll Item, click New.
- QuickBooks Simple Start: In the Related Activities section, choose Add Payroll Items.
- Select Custom Setup, click Next.
- Select Company Contribution, click Next.
- Enter a name, such as S-Corp Medical Insurance , click Next.
- In Agency for company-paid liability you can leave the fields as they are and click Next.
- In Tax tracking type choose SCorp Pd Med Premium. Click Next.
- In Taxes, do not make any changes and click Next.
- In Calculate based on quantity, leave the default set to Neither, click Next.
- In Default rate and limit, leave the fields as blank, click 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.
The tax tracking type typically used for this payroll item is SCorp Pd Med Premium; EZ Setup applies this tax tracking type by default. 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:
If the 2% shareholders have a different plan from the other employees - EZ Setup (recommended method):
- Access the Payroll Items.
- QuickBooks Pro and Premier: From Lists on top menu bar, click Payroll Item List.
- QuickBooks Simple Start: Click Payroll on the top menu bar, select Setup and Maintain, choose View/Edit Payroll Items.
- Create a new Payroll Item:
- QuickBooks Pro and Premier: Select Payroll Item, click New.
- QuickBooks Simple Start: In the Related Activities section, choose Add Payroll Items.
- Select EZ Setup, click Next.
- Select Other Additions, click Next.
- Select Taxable fringe benefits, click Next until Finish.
If the 2% shareholders have a different plan from the other employees - Custom Setup:
- Access the Payroll Items.
- QuickBooks Pro and Premier: From Lists on top menu bar, click Payroll Item List.
- QuickBooks Simple Start: Click Payroll on the top menu bar, select Setup and Maintain, choose View/Edit Payroll Items.
- Create a new Payroll Item:
- QuickBooks Pro and Premier: Select Payroll Item, click New.
- QuickBooks Simple Start: In the Related Activities section, choose Add Payroll Items.
- Select Custom Setup, click Next.
- Select Company Contribution, click Next.
- Enter a name, such as Taxable Fringe Benefits, click Next.
- In Agency for company-paid liability you can leave the fields as they are and click Next.
- In Tax tracking type choose Fringe Benefits. Click Next.
- In Taxes, do not make any changes and click Next.
- In Calculate based on quantity, leave the default set to Neither, click Next.
- In Default rate and limit, leave the fields as blank, click Finish.
