How To Add S Corp Health Insurance Premiums To Payroll

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How To Add S Corp Health Insurance Premiums To Each Payroll

Background

As a greater than 2% shareholder employee of an S corporation, any health, disability, or accident insurance premiums paid by the corporation on the shareholder’s behalf must be reported as taxable wages to the shareholder, subject to state and federal income tax withholding.  However, these wages are not subject to FICA (Social Security and Medicare) or unemployment taxes.  Because the tax treatment of these premiums are different than regular wages, you can set up an ongoing contribution with each payroll in Patriot Software to handle this.  You also have the option of adding a one-time lump sum at the end of the year.  For details, see Adding a One-Time S Corp Shareholder Health Premium Update.

To Set Up an Ongoing Health Insurance Premium To Be Used in Payrolls

You can set up a taxable company-paid contribution and assign to the shareholder, if you choose to calculate the company-paid health insurance premium with each payroll.  First, you will need to set up a company-level contribution, then assign to the shareholder employee.

To set up a company-level contribution

Settings > Payroll > Deductions & Contributions

  • In the Contributions list, click “Add New.”
  • Add a description, such as “S Corp Owner Health.”
  • Leave “For Deduction” blank.
  • For the Method, choose “Fixed Dollar.”
  • For Taxability, choose “S Corp Health Insurance.”  This will ensure that this money is taxed correctly and shows in the correct boxes on the W-2.
  • For Fixed Amount, if this amount will be the same for each shareholder for each payroll, you can enter the amount here, and it will be pre-filled when you assign to the employee.  Otherwise, leave this field blank if the amount will be different for each person.
  • When you choose this Taxability, the “W-2 Box” field will prefill to “Box 14 – Other” with a label of “SEHI.”  You can edit this label if you wish, but the limit is 5 characters in order to properly fit on the W-2.
  • Click Save.

To assign the contribution to the shareholder employee

Payroll > Employees >  Employee List > Select employee name

  • Click the Deductions & Contributions tab
  • Under the Contributions list click “Add New.”
  • Select the contribution you added at the company level, called “S Corp Owner Health” (or whatever description you chose).
  • The Method of “Fixed Dollar” will prefill.
  • For the Formula, enter the dollar amount of the health insurance premiums that should calculate every payroll.
  • Click Save.

Now, when you run payrolls for this shareholder employee, the S Corp Owner Health contribution amount will appear on the pay stub and in reports as a taxable fringe benefit, and will be taxable for federal and state income tax only.  This amount will not be included in their net pay. Please note, Patriot will NOT be collecting the income taxes associated with the S Corp Health Insurance Contribution. This will only update the taxable income wages on the W-2.

Viewing Year-To-Date Contributions

You can find the total amount of year-to-date S Corp Health Insurance Contributions for each employee on the Payroll Details Report.  

Reports > Payroll > Payroll Details

  • For Start Date, enter January 1st of the current year.  For End Date, enter the most recent paycheck date.
  • To view just one employee, select the employee from the list.
  • Under the Employer Contributions section, the total amount of S Corp Owner Health (or whatever description you chose) will appear, and the employee’s federal and state taxable wages have increased by this amount.  

Viewing the contribution on the W-2

When you view the W-2 Summary Report or download the actual W-2 form, the year-to-date S Corp Health contributions will be added to the total in Box 1 for federal taxable wages, Box 16 for state taxable wages, and Box 14, with the label “SEHI” for Shareholder Employee Health Insurance.

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