S-Corp Health Insurance

[Lion]

I struggle over this one partnership and one S-Corporation with health insurance and Simple every year, usually because they've done something or missed something that interrupts the flow. Got the partnership done and delivered and haven't heard a peep from them as they TT their joint return. Finished the S-Corp bookkeeping and was working on the return and was so happy that they finally executed the Simple appropriately with all the right reportings on the W-2s for the very first time after I nagged them all fall.

However, where the health insurance premiums have been on the major shareholder's W-2 in the past, they are NOT on the W-2 this year done by an outside payroll company. (No. That's not even an option. Owner had payroll run at least three times due to one of his employees upset over the now correct Simple reporting!) So, company did pay health insurance premiums. Not on W-2. If company deducts the premiums and employee/shareholder does nothing on his Form 1040, do we all come out even? When company pays and deducts as wages and W-2 reports and employee deducts on 1040, everyone is whole. So, because premiums were not added to wages, will it work for company to still deduct? Without employee deducting on 1040, there's no double dipping.

It's late and we all lose an hour of what little sleep we get and I'm so confused. I do the bookkeeping and the corporate return and know the preparer of their personal return, former colleague from my years at Block. So, if we know how to make this flow, we will do what's right.

[geekgirldany]

Can you redo the Payroll forms to reflect the shareholder health insurance?

I've had to do this on three this year. Amended 4th Qtr 941, 940, W-3, W-2, SUTA. Was a pain but I wanted to make sure it was on the W-2.

[JohnH]

I'm not saying do it one way or the other, but I think the issue is slightly different depending upon whether there's a single shareholder or multiple shareholders. With a single shareholder, letting it go one year is probably no harm-no foul. With multiple shareholders it's a different ball game, because different premiums for different shareholders cause unequal distributions, potentially creating problems with the S-corp election itself. (A long shot, but possible).

Maybe someone will point out other reasons I'm off base, but I've followed this logic in the past.

[Lion]

Agree

Agree with both of you. I'd pushed them in the past to run health insurance through payroll, and they had been doing it for the past couple of years. This year, no. Maybe I gave them numbers too late for Paychex to deal with it. Owner had Paychex rerun 4Q/year-end multiple times as he argued with an employee re their Simple plan. I'm very hesitant to get into their payroll with an already disgruntled employee. And, they finally ran their Simple plan through payroll, and that involves three employees, so that former problem was solved for 2009.

I think, in my sleep deprived state (our basement is flooding, sump pump in well failed overnight) that the bottom line is the same if I report what they did and not what I wish they'd done. I work from bookkeeping through the corporate return (no payroll, that's Paychex) and work with their individual preparer at their request, so there will be no double-dipping or lost deductions. Small company, husband/wife shareholders 95%/5%, few other employees, and only husband gets medical insurance (other qualified employees have waived the plan as not as thorough as they get through their spouses' employment). I know it's not right, but it's 14 March! Insurance is only 2% of corporate expenses. I could work it as a 95%/5% distribution, but then the medical deduction is lost on both returns.

I'll watch them better next fall to get all their benefits run through payroll. I now have a working relationship with their Paychex rep. With no shareholders outside the marriage, I think I'm going to go with this. Thanks for exploring this with me.