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Health insurance on W-2

Forum|Forum|2 years ago
October 24, 2023
4 replies
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The amount of health insurance paid for the year is often not known by the time the final paycheck is processed. What do I need to do to add the correct amount to Box 1 wages?

Lacerte Tax

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Best answer by qbteachmt

"These payments are not made from the business account. Therefore, payroll can't be instructed until the final payment is made by the owner."

It's still only problematic across the year end.

First, most people know what the upcoming payment will be.

Second, payroll processing usually waits for all submissions that affect year end, including health, allowances, taxable fringe such as transportation and tuition, etc.

Third, even if the person has a final late Dec payment that they pay personally, and they don't submit that to be reimbursed until Jan, you put it on the Jan paycheck. Paychecks are not accrual.

"and I'm refining how to talk with owners about this area of tax."

What you might not have is people familiar with being responsible for their own payroll timeliness? Which is why they can use someone, outsource to ADP or a local CPA office which offers payroll services. At least until your client gets up to speed.

Here's a comment I use often: If you are an engineer, you have better things to do than stand at the Kinko's copiers. Let your clerk do that part; your time is more valuable by doing your engineering.

The same is true for payroll. Don't do your own payroll when your business skills give you a higher and better use of that time.

BobKamman

Level 15

Why would it not be known? Does Blue Cross accept Bitcoin these days, and you have to figure out a conversion rate?

S

strongsilenceAuthor

Level 10

Bob, see my answer above. Bitcoin payments don't make sense.

IRonMaN

Level 15

I'm not sure why it wouldn't be known either, but you can always run a payroll on its own with gross wages equal to the insurance premiums with an insurance withholding account offsetting the gross wages. Make sure and show Social Security and Medicare wages as zero on the check.

Slava Ukraini!

qbteachmt

Level 15

I don't understand why this is not known, either. It's being paid in some sort of cycle. Even if payroll is quarterly, the business has made payments-to-date for that pay period. Example:

Semi-monthly: Paychecks are issued on the 5th or so (for pay period from prior mid-month to end of month). That will be the first paycheck of the new year, and any health premium paid is added. Paychecks are issued around the 17th or so (for pay period from 1st to mid-month) and any health premium paid is added. It is unusual for there to be two health premium payments each month.

Every pay cycle has a similar pace.

And whoever is doing this payroll isn't done until all year end benefits and fringe and other considerations are included. You don't "add" to a W2. It's not even issued until the data is collected and then it is reported. That's why a W2 isn't due by Dec 31. And that's why payroll clerks don't run the last paycheck of the year until all taxable fringes are known, since there needs to be some sort of way to do withholding (or the employer has to provide an employee advance to cover withholding, and that gets messy).

Don't yell at us; we're volunteers

S

strongsilenceAuthor

Level 10

Thank you for replying. This is the heart of planning season, so I need to get clear and I'm refining how to talk with owners about this area of tax.

I don't understand why this is not known,

I think that the policy can be in the name of the business or not.

The owner might not make final insurance payments for insurance until late December. These payments are made personally for insurance such as CMS, United Health or Delta Dental. These payments are not made from the business account. Therefore, payroll can't be instructed until the final payment is made by the owner.

Here is the general guidance:

Health Insurance in Name of Business: According to IRS Notice 2008-1, the health insurance policy can be either in the name of the S Corporation or in the name of the shareholder-employee, as long as the S Corporation either directly pays the premiums or reimburses the shareholder-employee for the premiums and reports the premium payment or reimbursement as wages on Form W-2.
2% Shareholder-Employee: In the case of a 2% shareholder-employee, the premiums paid for health insurance should be included in the employee's gross income but can be deducted by the individual on their personal income tax return. This is an "above-the-line" deduction under Section 162(l) of the Internal Revenue Code for self-employed individuals, which also applies to 2% shareholder-employees.
Payments for Personal Insurance: Payments for personal medical insurance policies could be included in wages and be deductible by the corporation, but it must also be included in the shareholder-employee's gross income. However, the individual may then be eligible for the self-employed health insurance deduction, subject to the limitations and qualifications under Section 162(l)

qbteachmtAnswer

Level 15

"These payments are not made from the business account. Therefore, payroll can't be instructed until the final payment is made by the owner."

It's still only problematic across the year end.

First, most people know what the upcoming payment will be.

Second, payroll processing usually waits for all submissions that affect year end, including health, allowances, taxable fringe such as transportation and tuition, etc.

Third, even if the person has a final late Dec payment that they pay personally, and they don't submit that to be reimbursed until Jan, you put it on the Jan paycheck. Paychecks are not accrual.

"and I'm refining how to talk with owners about this area of tax."

What you might not have is people familiar with being responsible for their own payroll timeliness? Which is why they can use someone, outsource to ADP or a local CPA office which offers payroll services. At least until your client gets up to speed.

Here's a comment I use often: If you are an engineer, you have better things to do than stand at the Kinko's copiers. Let your clerk do that part; your time is more valuable by doing your engineering.

The same is true for payroll. Don't do your own payroll when your business skills give you a higher and better use of that time.

Don't yell at us; we're volunteers

IRonMaN

Level 15

Why are you putting health insurance on the W-2 if the company isn't paying the policy or reimbursing the shareholder?

Slava Ukraini!

S

strongsilenceAuthor

Level 10

The company will reimburse the SH. That is a good point and I need to train them to get in the habit. This is part of my fall tax planning.

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