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 #
- Scenario 1: Employer Pays Premium, Employee Pays Taxes
- Scenario 2: Employer Pays Premium and Taxes
- Reporting and W-2 Form
- Troubleshooting
- Additional Resources
Scenario 1: Employer Pays Premium, Employee Pays Taxes #
Setup Instructions #
- Go to the employer deductions set-up screen.
- 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 #
- Go to the employer deductions set-up screen.
- 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
- 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
- Check the box ‘Check if used’ for both fields.
Usage #
This is typically entered Quarterly or Annually. Follow these steps:
- Go to paychecks and enter a paycheck or Manual check for each subject employee.
- Set Reg Pay to zero.
- 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.
- 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 #
- 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. - 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. - 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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