Health Insurance Compensation for 2% Owners of S-Corps

Health Insurance Compensation income for 2% owners of S-corporations (payroll tax year 2006 and earlier).

If it has been determined that the Health Insurance Compensation is:

  1. Taxable to Federal income and State income, and
  2. Not taxable for FUTA, SUTA, Social Security and Medicare,

Then a suggested entry procedure in Payroll System 2006 is

  1. In add/edit payroll - make a separate payroll entry and date it appropriately.
  2. Put the Health Insurance Compensation under OTHER COMP.
  3. Put the Insurance Compensation as a negative amount under State UI/DI ADJ.
  4. Delete data numbers under SS and MEDI (wages and w/h).
  5. On form 940, enter the appropriate amount (it might be zero) of Health Insurance Compensation on line 4, Exempt payment

(Note that the REPORT/Payroll/940-941 Summary may not be correct for the 940 section and the FUTA liability could be overstated.)

How did we do?

Gross-up for Employer Paid FICA and CA SDI

Health Savings Account (HSA)