Clarity Accounting Services, Inc.
An agent of business transformation. We change lives.
Configuring Payroll Items for 2% shareholders of an S-Corp
One method I've seen set up by CPAs is to simply treat such benefits as distributions. That is another topic. This topic deals with recording the benefits via company contribution for payroll.
Setting up payroll items to accommodate health, life, and disability benefits for a 2% shareholder is not as complicated as you might think. Selecting options to ensure the W-2 boxes and appropriate taxes are affected needs special attention.
Take a look at the Form 1120-S. Notice how there is a line for "Compensation of officers" separate from "Salaries and wages"? You can help your tax preparer out by setting up payroll items for compensation of shareholders and officers separate from other employees - mapped to a specifically purposed account. Use the tax-line mapping tool on your chart of accounts as well. Compensation items are easy. Benefits to shareholders become a little more tricky. Let's start with the simplest benefit - medical (and dental) insurance premiums. I say this is the simplest, because your payroll subscription comes with this benefit configuration already programmed for you - assuming you do not have a discriminating plan. All you have to do is open your payroll item list, and add a new one using "Custom Setup". Select "Company Contribution" as the payroll item type, and give it an appropriate name to ensure you don't use it on a non-shareholder employee. Map this item to the appropriate accounts - again be aware of the tax-line mapping tool. In the screen "Tax tracking type" choose the "SCorp Pd Med Premium" option. The screen "Taxes" should be left alone, because QuickBooks has correctly selected for you the tax items to be affected. The options on the remaining screens are to be addressed unique to your own company policy. Pretty simple, right?
Company-paid life and disability premiums as a shareholder benefit follow the same procedures until you get to the "Tax tracking type" and the "Taxes" screens. This is where you need to be familiar with how these items are to be treated. QuickBooks is not going to help you here. At the time of writing this piece, our understanding is that there is no benefit to payroll tax treatment of these contributions, whereas medical insurance premiums were at least exempt from Social Security and Medicare taxes. So, the "Tax tracking type" is "Other" and the "Taxes" screen needs all items selected. Not too complicated, either...
QuickBooks and QuickBooks ProAdvisor are registered trademarks and/or registered service marks of Intuit Inc., used with permission.