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S Corp Health Insurance Premiums

Cost of Health Insurance Premiums for S Corporation Shareholder-Employees #

Overview #

This knowledge base article provides guidance on handling health insurance premiums for 2% or more shareholder-employees in an S corporation using ProPay payroll software. It covers two scenarios: when the employer pays the premium on behalf of the employee, and when the employer pays both the premium and taxes.

Table of Contents #

  1. Scenario 1: Employer Pays Premium, Employee Pays Taxes
  2. Scenario 2: Employer Pays Premium and Taxes
  3. Reporting and W-2 Form
  4. Troubleshooting
  5. Additional Resources

Scenario 1: Employer Pays Premium, Employee Pays Taxes #

Setup Instructions #

  1. Go to the employer deductions set-up screen.
  2. Create a memo field:
    • Field Name: INS PREM-1
    • Type: (M)emo
    • Check boxes to exclude from FICA, FUTA, and SUI
    • Enter W2 CODE “3”
    • Check the box ‘Check if used’

Usage #

Each pay date, enter the amount paid by the employer on behalf of the employee. The federal and state withholding will be deducted from the employee’s Net pay.

Scenario 2: Employer Pays Premium and Taxes #

Setup Instructions #

  1. Go to the employer deductions set-up screen.
  2. Create two memo fields:
    a. Field 1:
    • Field Name: INS PREM-1
    • Type: (M)emo
    • Check boxes to exclude from FICA, FUTA, and SUI
    • This should be reported in W2 box 1
  3. b. Field 2:
    • Field Name: INS PREM-14
    • Type: (M)emo
    • Check all boxes to exclude it from all taxes
    • W2 CODE “3”
    • This should be reported in W2 box 14
  4. Check the box ‘Check if used’ for both fields.

Usage #

This is typically entered Quarterly or Annually. Follow these steps:

  1. Go to paychecks and enter a paycheck or Manual check for each subject employee.
  2. Set Reg Pay to zero.
  3. For INS PREM-1, enter the cost of Health and Accident Insurance premiums paid on behalf of the 2% or more shareholder, including any applicable gross-up amounts for Fed and State income tax withholding.
  4. For INS PREM-14, enter Health and accident Insurance Premiums, excluding any applicable gross-up amounts for Fed and State income tax withholding.

Reporting and W-2 Form #

After entering the data, print the W-2 form for each employee to ensure proper reporting.

Troubleshooting #

Common Issues and Solutions #

  1. Issue: W-2 form not showing correct premium amounts.
    Solution: Double-check that you’ve entered the correct amounts in the appropriate fields (INS PREM-1 and INS PREM-14) and that the ‘Check if used’ boxes are checked for both fields.
  2. Issue: Deductions not appearing on employee paychecks.
    Solution: Verify that you’ve entered the deduction amounts for the correct pay period and that the deduction fields are properly set up in the employer deductions set-up screen.
  3. Issue: Incorrect tax calculations.
    Solution: Ensure that you’ve checked the appropriate boxes to exclude the premium amounts from FICA, FUTA, and SUI as instructed in the setup process.

Additional Resources #

For further assistance or questions, please consult:

  • ProPay software help menu
  • Paysoft website
  • Contact Paysoft customer support for personalized assistance

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