2% shareholder health benefits

[S T]

I am processing W-2's for a S Corp. There is a 2% shareholder, that the S Corp is paying 50% of the health insurance premiums.

When this company set up their payroll, for this 2% shareholder they have 50% of premium being deducted pre-tax and not paying fica/mcare, etc. and then showing the S Corp health benefit, but it neither amount is showing in wages.

I didn't think a 2% shareholder could reduce their taxable wages, health insurance pre-tax? Shouldn't the 2% shareholder's amount be subject to FICA/Mcare,

And somehow I need to correct as well, the S Corp payment to be included on W-2 wages, not subject to Fica/Mcare/State Disability? correct

And each of these amounts added to the Wage box?

Any suggestions for QB entries to correct this. None has been reported on the Quarterly form 941 or State.

Thanks,

Sandy

[veritas]

The W2

should include the premium portion paid by the corp in his income, Box 1 of W2. It is not subject to Fica, Futa, Suta. It is included in the total renumeration on form 940 and then subtracted out as a fringe benefit.

Also show the amount in box 14 so his preparer knows what to deduct on the personal return.

He can not deduct the premiums withheld from his wages as pretax.

There are no pretax benefits for a 2% shareholder in an Scorp.

[John of PA]

good answer

good answer veritas.

[S T]

Great Answers

I understand what was posted, I am trying to figure out how to make the corrections in Quickbooks so the W-2 reports print out correctly.

Then in the meantime, I have to advise the client how to correct in Quickbooks for 2008 so it doesn't occur again next year.

Looks like my 941 is underpaid, and do I have to go back to each quarter, or can I make up on the 4th Quarter for the "oops" on the pre-tax deduction on the 2% shareholder health benefits.

Any help would be greatly appreciated.

Sandy

[veritas]

I don't see

a big problem here. Report the gross wages for income tax purposes on form 941 line 1 including the "pretax insurance" withheld. Do not include the witheld amount as social security wages or medicare wages on the 941. Put the company provided premiums on the form 941 the same. Do it all in the 4th quarter. There should be no additional tax due.

[S T]

Still struggling

2% shareholder, 50% health care paid by 2% shareholder and 50% health care paid by S corp, the payroll shows that pre-tax deduction of 50% of the health benefits was taken , so reduced the Fica/Mcare deduction and gross wages.

Box 1 shows 76,140 (which is 76,140 wages less pre tax health of 8,947 + 8947 S corp Health 50%)

box 3 and 5 (soc sec wages/mcare wages) show 65,212 (76140 shareholder wage less 50% pre tax).

shouldn't gross wages box 1 - be 76,140 + 8947 from S corp (not reduce for 50% health care pre-tax) = 85,087

shouldnt box 3 and 5 (soc sec wages/mcare wages) = 76,140 not include S corp 50% paid

2% shareholder is not allowed to use pre-tax health care, correct. The health care coverage is in the name of the S corp Group provided to all employees.

S corp pays for 50% of health care benefit to 2% shareholder, so that is included in box 1 and not subject to fica/mcare, correct?


If the above is true, then the 941 payments are short the 2% shareholder's deduction for pre tax health care that the 2% shareholder is paying as it reduced shareholder wages.

Sandy

[Gretel]

Sandy,

I agree with your conclusions. 50% paid by corporation needs to be included in box 1 but not box 3 & 5. 50% paid by 2% shareholder should be treated as after tax contribution meaning to be included in box 1,3 and 5.

Both, because 2% S-corp. shareholder is not deemed to be an employee. I also don't think that the 50% S/H paid is deductible on 1040.

[Burke]

2% Shareholder Health Benefits

I understand what was posted, I am trying to figure out how to make the corrections in Quickbooks so the W-2 reports print out correctly.
Sandy

I just recently helped a client do her W-2's and 941's for last quarter trying to accommodate the health ins situation for a more than 2% shareholder. We had to override the W-2 and the 941 for line 1 wages, as we could not figure out how to make the software do it. If anyone knows how, please let me know. I suppose if she overrode all the 941's each quarter, then the W-2 might print right. Not sure. (PS: Last year I had to adjust the 941 and I just did it on the last quarter.)

[MomBob]

QB Payroll Item

S T Do you have a payroll item setup in QB for the health insurance? If not set one up in QB, it will handle this type of transaction for you. You don't have to adjust your 941 reports each quarter. Use the EZ setup for a new payroll item, it will walk you through and set up your payroll item correctly. If you need help let me know.

[S T]

Thank you

Thanks Gabriele and Mom Bob,

I will override in QB and make the 4th qtr corrections. Yes I found the item to set up to include for 2008 and treat the shareholder's 50% as taxable.

Gabriele, I believe because the shareholder's 50% is included on W-2 it will qualify for the 1040 SEHI adjustment and also because the shareholder is not deemed an employee for this purpose.

Sandy

[Gretel]

Thanks Gabriele and Mom Bob,

I will override in QB and make the 4th qtr corrections. Yes I found the item to set up to include for 2008 and treat the shareholder's 50% as taxable.

Gabriele, I believe because the shareholder's 50% is included on W-2 it will qualify for the 1040 SEHI adjustment and also because the shareholder is not deemed an employee for this purpose.

Sandy

Yes, Sandy, maybe you are right. Somehow I thought the corporation needs to pay for the premium.