This is a friendly reminder to inform your payroll administrator to add any accident, dental, vision, hospital, long-term care, and health insurance premiums paid by the company and personal use of employer’s vehicles to your last paycheck of the year. Failure to properly report S-Corp health insurance can result in a penalty. You can also take this opportunity to pay in additional federal withholding to limit your April 15th tax burden.  If you do not have a payroll administrator, and you use QuickBooks or ADP, please see the instructions below on how to add the items to your regular payroll.

Health Insurance Premiums

From IRS Publication 535:

You received wages in 2019 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.

For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or the S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 in box 1 as wages to be included in your gross income. Otherwise, the insurance plan won’t be considered to be established under your business.

This also includes indirect ownership of family members; spouse, children, grandchildren, and parents.

Personal Use of Employer’s Vehicles

Any employee who has the personal use of an employer’s auto, must have the value of that personal use included in compensation. The personal use is subject to Federal, Social Security, Medicare, and Federal Unemployment Taxes. The amount of compensation is computed based on a government formula considering the fair market value of the vehicle, the amount of personal use compared to business use, and a fuel factor. See IRS Publication 15-B for instructions on the personal use calculation using the methods below.

Fringe Benefit Valuation Rules:

  • General Valuation Rule
  • Cents-Per-Mile Rule
  • Commuting Rule
  • Lease Value Rule

QB Full Service Payroll instructions:

If you run into any issues with instructions use the “contact us” link in your QBO account for payroll.

Setting up Fringe benefit payroll items:

  1. From the QBO menu on the left menu, select Employees.
  2. Select the employee’s name.
  3. Select Edit in the Pay section.
  4. Select Show ALL pay types.
  5. Select all relevant fringe benefits.
  6. Select ok.

Entering fringe benefits amounts:

  1. From the left menu, select Workers.
  2. Select Run Payroll
  3. Enter the employee’s regular pay and the amount of the fringe benefit field previously added.
  4. Preview and Submit the payroll.

QuickBooks Desktop instructions:

Insurance

  1. From QuickBooks menus at the top, click List > Payroll Item List.
  2. At the lower left of the Payroll Item List, click Payroll Item > New.
  3. Select EZ Setup, click Next.
  4. Select Insurance Benefits, click Next.
  5. Select S Corp Medical, click Next until Finish.

Personal use of vehicle

  1. From the QuickBooks menus at the top, click Lists > Payroll Item List.
  2. At the lower left of the Payroll Item List, click Payroll Item > New.
  3. Select EZ Setup, click Next.
  4. Select Other Additions, click Next.
  5. Select Taxable fringe benefits, click Next until Finish.

RUN ADP instructions:

Insurance

  1. Log into ADP
  2. From the “Company” drop down menu select “Earnings Deductions”
  3. At the bottom of the screen select “Add Earnings”
  4. For Category select “Fringe benefits”
  5. For Earnings select “S-Corp 2% medical plan”

*Note if you do not see S-Corp 2% as an option, you need to contact ADP for them to activate this on your account.

Personal use of vehicle

  1. Log into ADP
  2. From the “Company” drop down menu select “Earnings Deductions”
  3. At the bottom of the screen select “Add Earnings”
  4. For Category select “Fringe benefits”
  5. For Earnings select “Automobile fringe”

To pay in additional withholding, create your normal paycheck and manually change the federal withholding amount.

If you have any questions, please feel free to contact us.

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