If your company DOES pay for officers’ health insurance, please read on…
ISSUE / CONCERN:
If your corporation pays for your officers’ health insurance premiums, and those officers own 2% or more stock in the company, and you want to deduct those premiums as business expenses, they must be paid by your corporation. Furthermore, they must be included on the officers’ W-2s. The total company-paid annual premiums need to be reported in Boxes 1 and 14. (This includes medical, dental, long term care, and Medicare insurance premiums, where applicable. It also includes family coverage, if the company pays those premiums.)
Where on the W-2?
In Box 1 Gross Wages, and in Box 14
Is it taxable?
The net tax is zero. While it is reported as taxable wages on the W-2 for federal income tax purposes, the officer will also receive an adjustment for that same amount on their individual personal 1040 tax return. In other words, it’s a wash. However, it is required to be reported if the corporation takes the deduction.
It is not taxable for Social Security or Medicare.
Does this apply to my employees?
No. This only applies to the officers (who many times are the owners).
I use QuickBooks payroll. How do I fix this?
QuickBooks Desktop Software
- Create New Payroll Item
- Select EZ Setup – click Next
- Select Insurance Benefits – click Next
- In Payroll Setup under ‘Other Insurance’ select “S Corp Medical”
- Set up Payment Schedule and amount
Intuit Online Payroll
- Go to Employees tab
- Click an employee's (officer’s) name.
- On the employee's overview page, look for the Pay section and click Edit.
- Scroll down to the ‘What additional ways do you pay?’ section and click to select the ‘S-Corp Owner's Health Insurance’ checkbox.
- Optional: Enter a default amount to be paid each paycheck. You can always change the amount when you create the paycheck.
- Click OK.
QuickBooks Online Payroll
- Go to Employees Screen
- Click an employee's (officer’s) name to edit
- On the employee's overview page, look for the Pay section and click on the pen icon to edit
- Under ‘How much do you pay name’ click on the pen icon to edit
- Select ‘S-Corp Owners Health Insurance’ and amount per pay period.
I use a payroll company. How do I get this reported properly?
Each payroll company is different. It is best to speak with one of their payroll specialists and let them know that you need to report these premiums as “2% Shareholder Medical fringe benefits.”
What is the definition of “officer”?
For purposes of the S-Corporation, the IRS defines an officer as anyone running the day-to-day operations of the company and who also own 2% or more of the stock in the company. They may be people acting in the capacity of the President, Secretary, Vice President, Treasurer, Assistant Treasurer, Controller, Assistant Secretary, Chief Operating Officer, Chief Technology Officer and Chief Administrative Officer, etc. – but also who would receive a K-1 at year-end. This may apply if your company is an LLC where the owners are legally referred to as “members” or “managers.”
Thank you for your attention to this critical tax issue. If you have any questions, please let us know. We wish you a happy holiday season and we look forward to working with you after the New Year!