Health insurance premiums paid on behalf of a greater than 2 percent S corporation shareholder employee are deductible by the S corporation and reportable as wages on the shareholder employee’s Form W-2, subject to income tax withholding.
These additional wages are not subject to Social Security, Medicare (FICA), or Unemployment (FUTA) taxes if the premium payments are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees.
The additional compensation is included in the shareholder employee’s Box 1 (wages) of Form W-2, but is not included in Boxes 3 and 5 of Form W-2.
A 2 percent shareholder employee is eligible for an above the line deduction in arriving at adjusted gross income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements.
If the shareholder or spouse was eligible to participate in any subsidized health care plan, the shareholder is not entitled to the above the line deduction. IRC Section 162(l).
Be sure to set up your health insurance deductions and employer contributions through your payroll software.
In quickbooks you can specifically add new deductions/contributions, selecting health insurance from the deduction/contribution type, and detail further into medical insurance, dental insurance, and vision insurance.
You should enter the description and name of the provider for health insurance. Select the amount per pay period, and enter the dollar amount per paycheck per employee, or you can enter the amount per year the employee can deduct or the S corporation can contribute.
Contact Tax Attorney Abtin Barzin for help with your corporate tax preparation needs. (949) 584-2578