S Corp Health Insurance Premium Reimbursement
pivy
Member Posts: 8
I have an S Corp, and I'm my sole employee. The S Corp pays my health insurance premiums, which are subject to income taxes, but not social security or medicare. Is there a way to get Wave to properly account for this tax treatment?
2
Comments
Hi, @pivy,
When you account for your deductions in Wave, you'll do it through a journal entry. You can split those deductions between different accounts as needed. In your case, I would recommend having different expenses or liability accounts for each of those taxes (depending on how they are handled on your side).
I can't give advice when it comes to tax compliance, however, as I'm not an accountant and I'm not familiar with your local tax regulations. Whenever taxes are involved, it's always a good idea to check in with an accountant. They would be able to help you much more than I could.
This is one of the things that has really bugged me with Wave Payroll. For being small business focused this is a major oversite on their payroll offering(especially since this is something you pay for). Every year I basically keep Health Care Premiums in their own category of expense and then instead of submitting the W2s as is from Payroll I manually enter the data into the SSA site by adding the total amount of that account to box 1 and 16(I have state income tax too). It is annoying and I have had to do it every year for the last 3 years. I am hoping one day Wave will fix this and add it as a special benefit under payroll. My accountant yells at me about it every year but they get over it and make it work.
Agreed! I deal with the same issue as kdeconsulting. It's ridiculous that we're paying over $400 a year now for a half baked payroll solution. Guess I'll be looking at quickbooks for 2019
Whoa. I just moved to Wave Accounting and Payroll for 2019 and I guess I overlooked this problem. I was wondering what to do about my business S corp health insurance premiums, and now I see this is a problem. hmmm.
I also have the same problem.
It would be nice to Wave to chime in and update us if there is any effort or progress on this topic.
Hey everyone. Thanks for laying out your feedback on how this would benefit your businesses here. Full transparency -- we still don't have an ETA of when this would be added to a sprint or a future roadmap for planning implementation. It's something that I'm more than happy to bring up with our Payroll Development team to see when/if this can be offered, and give an update on this thread itself. Once again, thank you for the feedback and when I have a bit more information to give on this subject, I will reach out here.
So, what is the latest on this topic? Any progress on Wave side yet? Thanks
Hey @atamano, I'm afraid we still have no update or ETA on this feature. As Jamie mentioned we will be sure to update this thread as soon as we do. As always, we really appreciate your patience!
I'm assuming this issue has been taken care of. I found this following article that seems to apply:
https://support.waveapps.com/hc/en-us/articles/360035818651
Hey @Labob246 . The newest change is for 2% shareholder health insurance premiums which has changed in the past half year or so. Feel free to use that Help Center article, or add the modifications by clicking into Benefits & Deductions under your Employee's profile in Wave.
Yes, that article does describe what to do in Wave to allow for the health premium costs to be added to the federally taxed amount only. So thanks to Wave for taking care of that issue.
Well, it took a year, but better late than never, I guess. I'd much rather do free Wave and $25 payroll than pay more than twice that for Quickbooks.
Except ... while it seems like you can correctly do payroll going forward, entering payroll history doesn't seem to work: If you enter the amounts subject to income tax, it automatically tags them all with full FICA taxes, but if you enter just the amount subject to FICA taxes, now you're excluding income subject to income taxes. Maybe a helpful person can make these adjustments manually on the backend?
Hey @pivy , I see that you have an ongoing ticket with our Support team. They're happy to help you with any manual adjustments that need taking care of!
This is my first year of using your payroll service and I have correctly set up the owner with 2% shareholder health insurance premiums per the article. I am confused why I have to write a separate check for the amount so when it clears transactions as a Bank Import I have to label it as S-Corp premium expense. My W-2 boxes are correct but yy tax accountant just barked at me that it cannot be showing as a business expense. So, what is the proper steps to clear transactions so everyone is happy?
It is a legitimate Subchapter S business deduction. It's just that the IRS wants the premiums to be taxed at the federal level, so it becomes income to you on your W2
@Labob246,
The premiums are not actually taxed at the federal level. When done correctly, the health insurance premiums an S-Corp pays for more than 2% shareholder go in box 1 of the W-2. The S-Corp takes a deduction for compensation for the owners SS wages + health insurance. The W-2 would show in Box 14 SEHI with the amount equal to the health insurance. When completing the personal return so long as there is enough medicare wages to cover the health insurance, the amount is deducted as self employed health insurance. In effect, negating the addition in box 1. So it's not really taxed and just a wonky way of getting health insurance deducted by those who choose to be taxed as an S-Corp.
"If you own at least 2% of shares of your S-corporation, you should be able to save additional payroll tax by having your S-corporation pay for your family health insurance coverage as long as it is included as part of your wages and your spouse is not eligible for coverage under a subsidized health insurance plan. The premiums are to be included as wages and are subject to income tax withholding.
That said, the amount paid is deductible as a wage expense by the S-corporation and isn’t subject to Federal Unemployment Tax, Social Security, or Medicare. The premium is considered self-employed health insurance and therefore deductible on your personal income tax return, Form 1040 at year-end. This is considered an “above-the-line” deduction."
My question is as this applies to WAVE payroll - it is set up correctly to take the S-Corp 2% wage deductions when I run payroll but I then have to write a physical check to the shareholder to cover the amount of his medical reimbursement. When that check clears WAVE and passes through the accounting transactions I have to designate what account to put it in. I have been assigning it as 'S-Corp reimbursement business expense' but my accountant says that is not right.?? Does it have to be a manual adjustment at the end of the year?
Hoping an Administrator may jump in on this for guidance.
Disregard my post above. I just had an 'education' talk through with my tax advisor and I now am aware that I have been literally issuing a reimbursement check in 2020 and should not have been. We are a very small employer and I eventually learn the tips and tricks of S-Corp taxes but usually via the hard way. Thanks everyone!
So, I've come back to Wave because my accounting has become a little simpler and I'm trying to reduce costs. I see that a new benefit type exists for 2% shareholder medical premium reimbursement. I set it up, I'm pretty sure correctly, and ran payroll. If I review the approved payroll there's a line item for "Taxable non-cash benefits" that reflects the amount of the reimbursement, but it isn't reflected in the payroll journal entry Wave creates, and it isn't run through direct deposit, but most importantly, IT DOESN'T APPEAR TO AFFECT WAVE'S CALCULATION OF FEDERAL INCOME TAX WITHHOLDING. What am I missing? Wave even calls it a "taxable" non-cash benefit, although I'm not sure the "non-cash" part is right. Is this going to show up on my W2?