Health Insurance for 2% owner of an S corp.

Summary

How do you handle the cost of health insurance provided by the company tp 2% stockholder's?

Question

How do you handle the cost of health insurance provided by the company tp 2% stockholder's?

Answer

Assuming an S-corporation... the benefits are not tax deductible to the corporation. You could just handle this on the K-1 and pass the "income" through to the stockholder's 1040.

If you prefer to run it through payroll and make it "automatic", I would set it up as follows:

• Set up a "company contribution" payroll item in QuickBooks. - In the "liability account" field, select "Health Insurance Expense". - In the "expense account", select "Gross Wages Expense". - In the Tax Tracking Type field, select "Fringe Benefits". - On the Taxes screen, deselect everything except Federal and State Withholding.

Use this item on the 2% stockholder's paychecks and it will increase gross wages, increase federal and state taxes, increase gross wages expense, and decrease health insurance expense. It will also be handled correctly on the 941, 940 and W-2. On the W-2, box 1 will be increased and the total amount will be reported in box 12.

On your P&L, the Gross Wages expense account will tie to the total of box 1 on the W-2s (including the amount of the health insurance benefit), and your Health Insurance Expense account will net out to the total of what was paid minus the 2% stockholder's portion.

We recommend against "accruing" the health insurance to a liability because the timing of the health insurance payments is often not consistent with the timing of payroll. If you do accrue insurance to a liability account on each paycheck, you'll have to use "Pay Liabilities" to pay your health insurance premiums. For more on this topic, see our Consultant's Reference Guide (http://www.sleeter.com/book-crg.html).