W-2 Help with S Corp HI Please

[JG EA]

OK. I'm putting an S corp's payment for the shareholders heath insurance (in the shareholder's name) into books as wages as has been established by many posts on this subject.

My question is in booking the expense to the insurance company. How do you do this? It's easy to put on a W-2, but there is no money actually paid to the shareholder. How do you set-up the payment to be made by the corporation to the insurance company?

What accounts do you set up?

[JohnH]

You could set up a "Clearing Account" (some prefer to call it a "Suspense Account" or some other moniker). I usually set up this type of account in the equity section just to flag it as something that must be dealt with when preparing financial statements. The idea is that it must be "cleared" at regular intervals, usually using journal entries, and returned to a zero balance.

The initial payment to the insurance company would be posted the Clearing Account. Then when you are ready to clear the balance, you enter a journal entry which distributes the gross salary to the appropriate wages account and the net against the clearing account. This sort of treatment can be used for all sorts of transactions which initially require writing a check but then must be handled in some special manner at a future date, usually via your intervention.

If you use clearing accounts, it's worth reminding the client that any interim P&L statements they pull might be misstated by the amount in the clearing account. An alternative would be to set it up in the "Expense" section of the chart of accounts, but doing that can also create some problems of its own, especially if the journal entries are complex or involve balance sheet accounts.

[JG EA]

Thank you so much. I will print this out and use it as my guide today. I really appreciate your help. I was going around in circles yesterday thinking it should somehow be a liability account and couldn't get it out of payroll liabilities.

[JohnH]

Glad to help out. Just as a follow-up, I also use another acccount I call "Accountant Review" for many clients, especially those whose QuickBooks accounts I access remotely. I tell them that any time they are not sure where something goes, they should post it to "Accountant Review". This enables me to quickly spot transactions that the client is not sure about, without having to do so much detective work. Repeated transacitons of the same type to the Accountant Review account are generally a flag that I need to discuss with the client how those items should be handled on a routine basis.

Whenever I access their accounts, the first thing I do is check "Accountant Review" and reclassify those transactions or get the client's input to help me determine where they should go.