1120-S shareholder health insurance premuim

[HOPE2]

Hi to all and @TaxGuyBill. I searched to find out my answer regarding health insurance premium for shareholder employee. Thanks @TaxGuyBill for this which I found it : On the K-1 worksheet, there is a section about health insurance.  Because of the 1095-A you DON'T enter the cost of insurance there, but you DO need to enter the Medicare Wages (Box 5 of the W-2) in that section of the K-1 worksheet.

Could please help me what section exactly on K1 you meant? I scrolled up & down did not see any box related Health insurance shareholder.

If the amount of box 5 of the W-2 is $60000 and box 1 is $72000 and box 14 (health insurance premium) is $12000 what number should be on that box? Box 14 or Box 5?

This is my first time to enter health primum on K1 and I did not find related box on it so please help me to find it out. 

2- When we take look on 1095-A , the diffrence between column A and C should be equal box 14 of W-2, I am asking just better understanding the figures, am I right?

3- When I searched here, our community, I found one said it comes with code AC on K1 and the other said, 

1. Go to Form 1120-S, page 3-5, Schedule K,  Line 17.
2. Scroll down to the Other Items to be Reported on Schedules K-1 Smart Worksheet.
3. Manually enter the description "Self Employed Health Insurance" and the amount paid on the Line A expanding table. But if I do it, the number goes in Supplemental Information Smart  worksheet not on any k1's box. Let ask you guys when S-Corp paid premium for shareholders the cost goes on line 18 page 1 and also shareholders should have on their W-2 which add up to wages. I think the only part I missed is K1! that I confused for. And when 1095-A received should linked to K1 S-corp. What else should I do it for? So sorry for taking your time and I really appreciate it.

[IRonMaN]

Based on the questions you are asking about an 1120S return, it doesn't appear that you have prepared that type of return in the past.  You really need to reconsider if you have the skills that you need to prepare the return properly and should seriously consider referring the client elsewhere.

[TaxGuyBill]

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@HOPE2 wrote:

Could please help me what section exactly on K1 you meant? I scrolled up & down did not see any box related Health insurance shareholder.

Box 14 or Box 5?

2- When we take look on 1095-A , the diffrence between column A and C should be equal box 14 of W-2, I am asking just better understanding the figures, am I right?

3- When I searched here, our community, I found one said it comes with code AC on K1 and the other said, ... not on any k1's box.

1. Let ask you guys when S-Corp paid premium for shareholders the cost goes on line 18 page 1 and also shareholders should have on their W-2 which add up to wages.appreciate it.

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Right above line 1 of the K-1 worksheet is a "Quickzoom" for the health insurance.

It will ask for both the amount of insurance ($12,000) and also Medicare wages in Box 5 of the W-2.  But if there is a 1095-A, DON'T enter the cost of insurance ($12,000) there; only enter the Medicare wages.  As you said, you 'link' the 1095-A to the K-1, and that will do it. 

Box 14 of the W-2 shows the amount that the corporation paid for insurance.  In my opinion, the corporation is eligible to reimburse the full amount of premiums (column A of the 1095-A), but if did not reimburse that full amount, it should show whatever amount it actually reimbursed.  If the corporation did not reimburse the full amount of the premium, that could possibly limit the amount of the Self Employed Health Insurance deduction.

As far as I know, the insurance will not show up on the K-1.  It only shows up in Box 14 of the W-2, but it is fine (and probably a good idea) to include a supplementary statement about it if the corporation has other shareholders that are not your client.

Make sure the corporation only deducts the health insurance once.  One page 1 of the 1120-S, don't add it to both wages and for employee benefits.  Only do one of them.

[HOPE2]

Thanks, but still I could not find it, right above line 1 for Quickzoom on K1 worksheet, could you please post an screenshot of that area.

[TaxGuyBill]

You are entering the K-1 into the 1040 program, right? About an inch above line/box 1 of the K-1 entry, is a line that mentions health insurance and has a Quickzoom button.

Again, this is on the 1040 input of the K-1, not the corporate return.

[HOPE2]

I still need your help to understand this premium insurance.

For scenario 1: S-Corp paid health premium directly to provider and will deduct on page1 of 1120-S. What should we have on W-2 of shareholder-employee, I mean the premium should add on box 1 and shows on box 14  and have federal withhold for this? As far as I know if we run RcReport for reasonable Comp this amount is not included in there. And what can we do for 1095-A when client receive it. What is the rule of box 5 at this scenario.

Scenario 2: If shareholder paid premium to insurance company and S-Corp reimbursed it to shareholder and will deduct on page1 of 1120-S. What should we have on W-2 of shareholder-employee, I mean the premium should add on box 1 and shows on box 14  and have federal withhold for this? As far as I know if we run RcReport for reasonable Comp this amount is not included in there. And what can we do for 1095-A when client received it. What is the rule of box 5 of w-2 at this event?

Scenario3: If there is not a 1095-A what will happen for all above items?

To be honest, I did not get when premium should be add to box1 as gross income. When should be shown on box 14? 

[TaxGuyBill]

If the corporation pays for health insurance, it is added to Box 1 of the >2% shareholder's W-2.

In my opinion, income tax withholding should be done on that amount, but I think many tax preparers don't bother doing that.

Box 14 is only informational, so there is no 'requirement' to put it there.  However, it makes things clearer to explain why Box 1 is higher, and if you are not preparing all of the shareholder's 1040, it makes it much easier on the shareholder.

I don't know what RcReports shows, but "compensation" for a shareholder includes all benefits.  So if the corporation is paying for health insurance, retirement plans, etc. that is all "compensation".  That effectively means that if they have benefits, their salary/wages could be lower than if they received no 'benefits'.

All of that is true whether there is a 1095-A or not.  And the Self Employed Health Insurance deduction on the 1040 is limited to their Box 5 wages.  So if they had zero 'real' wages, and only had the health insurance benefits added to Box 1, they would not qualify for the Self Employed Health Insurance deduction because they didn't have any 'real' wages (Box 5).

If they have a 1095-A, when you enter that into ProSeries, you need to 'link' that to the business.  And make sure that spot on the K-1 has the Box 5 amount.  Doing those two things will trigger the program to do the complicated calculation for the Premium Tax Credit combined with the Self Employed Health Insurance deduction.

[IRonMaN]

"In my opinion, income tax withholding should be done on that amount, but I think many tax preparers don't bother doing that."

Why would you withhold taxes on that since they get a deduction for self employed health insurance a little farther down the 1040?

[TaxGuyBill]

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@IRonMaN wrote:

Why would you withhold taxes on that since they get a deduction for self employed health insurance a little farther down the 1040?

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From an employer point of view, they are paying a taxable fringe benefit.  The employer doesn't know if the employee qualifies for the Self Employed Health Insurance deduction (such as being eligible for a spouse's subsidized employer insurance).  Even more so if the corporation has other shareholders that the tax preparer does not do the 1040, they don't know if the shareholder qualifies.

But as you are pointing out, if you are doing the 1040, it may be easier to just take the short-cut because you know what the end result is going to be.

[HOPE2]

Thanks a lot, when we want to find out Reasonable Comp after that should add the premium to Reasonable Comp?

[TaxGuyBill]

Let's say you determine that "Reasonable Compensation" is $80,000.  If the corporation pays $10,000 for health insurance and $5000 into retirement, then his "reasonable" salary/wages may be $65,000.

[HOPE2]

Thanks, let me know what kind of retirement ($5000 for example) you meant?