S Corp Medical Insurance

published May, 2013

The most common issue I’ve run into this season was the S Corporation medical insurance issue for a greater than 2% shareholder.

I did write about this in October 2012’s newsletter (see this here: http://taxbuddha.com/newsletter/newsletter_2012_10.html)

If you’re the owner of an S corp and you want to deduct your medical insurance in the “most beneficial” way, the medical insurance payments need to appear on your W-2.

For more detailed information, see IRS Notice 2008-1 or
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues

QuickBooks does a good job of recording and reporting this, if you’re using QuickBooks for you payroll. The setup is a two-part process, first setting up the payroll item in the payroll item list, then adding the item to the payroll records of the owners who are receiving wages from the corp. Once set up, you’ll need to include the item in the paycheck (which will happen automatically). This will then show up on the year end W-2 form properly.

If I’m preparing your payroll, make sure I know how much medical insurance the corp is paying for each quarter.