Setup for 2% Shareholder/Officer health insurance

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Our Support department is closed on Friday, April 28th for a company event. However, limited Accounting CS phone support is available on that date from 9 AM - 5 PM ET due to the approaching deadline for quarterly payroll tax forms.

Links to our most popular payroll tax processing topics are available in the Alerts and notices section on the right side of most pages.

In Accounting CS Payroll, how do I set up / handle 2% Shareholder Health Insurance for my client?

This is a common question, but it is one that can be hard to answer because IRS guidelines can be interpreted in numerous ways. That being said, the setup in Accounting CS depends on how you want the shareholder health insurance amount to appear on the W-2, 941, and 940.

Example

The example makes the following assumptions:

We make no claims as this to being the only way to handle shareholder health insurance for an S-Corp client. Before setting this up, consult reference material or other knowledge resources to gain a complete understanding and then modify the steps below if necessary.

Setup

  1. Choose Setup > Payroll Items, and add a new Pay type item called "2% Shareholder Health" (or use a similar description).
  2. Set the Calculation type to Fixed amount.
  3. In the Taxability section, set the FUTA exempt payments field to Fringe benefits.
  4. In the W2 Additional Boxes section, mark the checkbox for Boxes 12 and/or 14, if the amount should be reported in one or both. Then choose a code or description to appear in each box with the amount.
  5. In the Exclusions section, mark the Gross pay presentation and Net Pay checkboxes 

    Note: This assumes that the shareholder health amount should not appear in YTD gross and net pay when printing reports, and not appear in gross or net pay on any paystubs.

  6. On the Tax Exemptions tab, mark "All," and clear the checkbox for Federal Income Tax.
  7. Click Enter to save your changes.
  8. Make the new pay item active for the employee on the Payroll Items tab of Setup > Employees.

Processing

  1. Choose to Actions > Enter Transactions, and add a new handwritten payroll check for the shareholder. Make sure to date the check in the 4th quarter of the appropriate year.
  2. Override the amount column of the 2% Shareholder Health pay item with the total amount of the health insurance.
  3. Override any other pay and deduction items to be $0.00
  4. FIT will calculate, but override the amount to zero.
  5. Press Enter to save the check.

Internal notes


The Affordable Care Act (ACA) did not change the above rules regarding the federal tax treatment of health and accident premiums paid for a 2% shareholder.

However, for tax years after 2013, the ACA imposes penalties on the S corporation if the S corporation offers a health plan that fails to comply with certain market reform provisions, which may include plans under which the S corporation reimburses employees for the cost of individual  health insurance premiums. The potential excise tax is $100 per day, per employee, per violation.

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