Recent IRS rules regarding the deduction for health insurance payments for S-Corporations have changed the deductibility of health care coverage. The new rules allow an S-Corporation to pay the health insurance premiums directly or to reimburse employees for payments made personally. Using the QuickBooks software, it is possible to account for these deductions and premium payments according to the new rules. It is a process in adding the payroll items to QuickBooks in order to get the W-2 reporting to be correct.
Items you will need
- Intuit Payroll subscription
Read the new rules for S-Corps and health insurance deductions in the instructions for a Form 1120S (see "Tips").
Open the QuickBooks company file. Click on the company you will be working on in the main QuickBooks menu. Make sure that the QuickBooks file considers this company as an S-Corp. Click on the "Company" button on the top menu bar. Find the "Company Information" tab and click on it. The type of company will be on the pop up screen and should read, "S-Corp."
Open the Payroll Items menu found in the "Lists" tab. Click on the "Lists" tab which will pull up the "Lists" menu, the "Payroll Items" will be located on the lower half of the menu. If you are not subscribed to the Intuit Payroll service, this list will not appear and you will not be able to add or change any payroll items.
Add new payroll item (Health Insurance) to list. Clicking the lower "Payroll Item" button from the payroll item list. Choose "New Item" from that list and the setup wizard for payroll items will pop up. If you are not familiar with accounting methods or payroll, choose the "E-Z Setup" method.
Choose the Payroll Type. The next menu to pop up will be the Payroll Item Type. From here choose the second option or the "Insurance Benefits" option. The program will automatically connect to the Internet to verify the Payroll subscription and the "Add New" menu will pop up. You may use this time to add just the one Health Insurance item or may add any of the other options as well. The option for S-Corps will be under the "Other Insurance" option and it will be labeled, "S-Corp Medical." Check this option and click "Next."
Set up the payment schedule for the S-Corp Medical Insurance. This includes entering the name of the Insurance company into the Payee or Vendor line, the account number for that account and the payment frequency to that account. This will set up the S-Corp Medical Insurance as a Company Contribution. Follow this procedure if the company is going to make the payments directly to the Insurance company. For instances where the employee will be paying for the insurance and will be reimbursed by the company, complete the setup as previously instructed with the addition of a reimbursement payroll item for this payment that compensates for the company contribution. Follow the payroll item setup wizard to do so.
It may help to read the Publication 535 instructions as well, specifically Chapter 16 on Deductible Premiums. In an S-Corp, the "owners" are not "owners" as they are "shareholders." If a person owns more than 2 percent of an S-Corp, since 2008 when the IRS laws changed, the health insurance premiums can be considered as deductible expenses for the S-Corp, whether the S-Corp pays the health insurance directly or reimburses the "shareholder" for premiums they paid. Remember that these amounts paid must be included on the W-2 as wages for the "shareholder'." Entering this process on QuickBooks can be a little tedious, but the rules state clearly that these payments must be made during the tax year in which they are deducted.
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