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Tuesday, 01 December 2009 00:44

By Tamara Dezellem, CPA

Your S Corporation may be paying medical insurance premiums for you as an employee of the corporation. The IRS has issued a recent pronouncement regarding self-employed health insurance deductions for S corporation shareholders. This is a deductible expense for the corporation but it is also reportable as wages to you on your personal income tax return. If you have access to a group health plan (such as your spouse’s employer) then this deduction is disallowed on page one of Form 1040 but can be included as an itemized deduction subject to the 7.5% limitation.

If the corporation paid for your medical insurance, you will need to include this additional compensation in your final paycheck for 2009. These wages are not subject to payroll taxes such as Social Security, Medicare or unemployment (FUTA) taxes. The additional compensation should be included in the Box 1 wages on your W-2 but not included in Boxes 3 (Social Security wages) or Box 5 (Medicare wages).

If you are using QuickBooks, the set-up for a new payroll item handles this type of compensation. Choose insurance benefits under the set-up of a new payroll item, and then choose S corp medical. Once the set-up is completed you can then choose this payroll item for the final payroll of the year.

If you need some assistance, please feel free to contact myself or Dawna Chase at 663-1661.

"The QuickBooks® expertise and assistance Dawna Chase and Cordell Neher has provided our agency has been invaluable. The level of QuickBooks® knowledge and the accessibility to receive personal attention from their team has met our every accounting need and exceeded our expectations. We look forward to continuing our professional relationship with Cordell, Neher and their team of experts for years to come."

Linette Gahringer
Executive Director
North Central Region EMS & TC Council