Lion EA Posted February 25, 2021 Report Share Posted February 25, 2021 Every year the bookkeeper gives me the health insurance paid for the H&W shareholder/employees. I tell them to report it to Paychex for H's W-2. This year with us all working from home and in different towns, we all forgot. Mathematically, it seems to be the same, right? Should've been on W-2, deducted as wages on 1120-S. Then income on joint 1040 but also an adjustment on 1040. For 2020 it's not on W-2, so does 1120-S still deduct it as employee benefit? And, then joint 1040 does NOT have extra income so will NOT have SEHI adjustment, right? Still same results on both 1120-S and 1040? I know the S-corp owner will NOT pay Paychex for correcting the W-2 and associated payroll reports. Do I have to do something like a distribution from the 1120-S? Thank you in advance for any help with this. 1 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 25, 2021 Report Share Posted February 25, 2021 1 hour ago, Lion EA said: I know the S-corp owner will NOT pay Paychex for correcting the W-2 and associated payroll reports. Likely a costly choice. Likely not something caught either, so it comes down to your comfort level for the return information you prepare. There are so many opinions on this issue. Because 2008-1 was all about deduction ability, many ignore what I see as the key, the amount is wages. While the end result is mostly a wash tax wise, a proportional amount should still be added to every pay check because of constructive receipt, to avoid plain old tax shifting. Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 25, 2021 Report Share Posted February 25, 2021 Did the S Corp pay the Health Insurance premiums or did the S Corp reimburse the 2% owners for the premiums? Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 25, 2021 Author Report Share Posted February 25, 2021 The S Corp paid the Health Insurance premiums. Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 25, 2021 Report Share Posted February 25, 2021 I guess I am old enough now that I can "off the record" admit that I was not always perfect. Many years ago, I did not correctly include the premiums in W -2 Wages for more than one client. Frankly, what I did was classify the premiums as a M - 1 adjustment, then take the SEHI on the owners 1040. It always sailed thru with no questions. There now I feel much better. 3 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 25, 2021 Report Share Posted February 25, 2021 It took me several years to get to a good place on this issue. What I mean, is from the payroll perspective, accepting it is wages needing to be reported via constructive receipt. While not likely enforced, a freshly minted auditor could win an income shifting case if the amount is only added to the W2, and not handled via paychecks. The "subject to withholding" clause is also important, point out simply adding the amount to W2 is not enough (despite the arguments it will be a wash because of the deduction). I get questioned by all sorts of people claiming my interpretation is incorrect, because most argue based only on the 2008-1 direction to include on W2, ignoring the part about "wages" and "subject to withholding". Online searching will usually result in links for the tax prep perspective, and the proper handling through payroll aspect is usually never noticed, or is ignored. I always admit to being human, as there are no better options at present <smile>. I expect a new cycle of proving I am human begins today, as I await the birth of my first ipok tek (grand daughter) today. 2 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 25, 2021 Author Report Share Posted February 25, 2021 We'll never tell. I think I had the same issue decades ago at Block. I think we deducted the SEHI on the 1120-S as employee benefit instead of wages. Then nothing on the 1040. Mathematically that worked, because Block was preparing both 1120-S and 1040 and the 1040 preparer told me what to do/what not to do on the 1120-S and what he'd do on the 1040, because whoever did payroll for that client missed the SEHI addition. Is their a corresponding part to the M-1 adjustment, such as adding it to line 7 or whatever for officer wages? The bad part, is I'm NOT preparing the 1040. So, if M-1 is the way to make up for Paychex not including on the W-2 ('m an IC, but the company's bookkeeper should've reported to Paychex, but this year is crazy with no facetime among us). Then, I have to explain to the shareholder/employee &/or his 1040 preparer that even though there's no SEHI on his W-2 that he DOES get to deduct it on his 1040 because I adjusted on M-1, right? Or, does the math work to do nothing on the 1040 if the SEHI is deducted (as opposed to adjusted) on the 1120-S? I only prepare a handful of entities, and going back and forth between partnerships and s-corporations taxes my non-accountant brain with balance sheets and just where to report things on the two similar but different tax return types? I need to get rid of entity clients, but one is my own son's partnership! 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 25, 2021 Author Report Share Posted February 25, 2021 Granddaughters are great !! 1 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 25, 2021 Report Share Posted February 25, 2021 Keep it simple. Show your son the the math, the amount of taxes he will personally pay if the W2 is not corrected, versus the cost of getting a correct W2 and W3 prepared. No need for you to "bend" things to get the desired result, even for family. My own family coverage is >$24k per year, so it would be a good bit cheaper to pay even a crazy amount for the "c" forms versus losing the above the line deduction of the >$24k. Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 25, 2021 Report Share Posted February 25, 2021 5 minutes ago, Lion EA said: Granddaughters are great !! I am losing my office room to make way for a "spare" room. My wife is simply giddy with anticipation (and shopping). She is arriving a few weeks early, once again, proving the kids run things around here. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 25, 2021 Author Report Share Posted February 25, 2021 Current issue is not my son's partnership; so no payroll on his. In the case you site, you add $24K in wages and adjust $24K in SEHI. Seems a wash on your 1040. If I'd been preparing payroll for this client, his W-2 would've had the SEHI. But, another company did that, and his W-2 does not have SEHI included in Box 1. And, I'm having trouble wrapping my head around what to do/not do on the 1120-S. And, trying not to sound too stupid when I have to explain to the shareholder &/or to his 1040 CPA. All three of my grandkids were born early, including the two that were only six days apart. 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 25, 2021 Report Share Posted February 25, 2021 18 minutes ago, Lion EA said: Option # 1. . . So, if M-1 is the way to make up for Paychex not including on the W-2 ('m an IC, but the company's bookkeeper should've reported to Paychex, . . .. Then, I have to explain to the shareholder/employee &/or his 1040 preparer that even though there's no SEHI on his W-2 that he DOES get to deduct it on his 1040 because I adjusted on M-1, right? Option # 2 . . . Or, does the math work to do nothing on the 1040 if the SEHI is deducted (as opposed to adjusted) on the 1120-S? I always used Option 1, but option 2 also works. I considered option # 2 but was always more comfortable with option # 1, of course I was doing the related 1040s. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 25, 2021 Author Report Share Posted February 25, 2021 Yeah, if a colleague were the other preparer... I think I'll fess up earlier rather than later to client and as permission to speak with his 1040 preparer... 2 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted February 25, 2021 Report Share Posted February 25, 2021 5 hours ago, Lion EA said: For 2020 it's not on W-2, so does 1120-S still deduct it as employee benefit? And, then joint 1040 does NOT have extra income so will NOT have SEHI adjustment, right? That's how I handle it. If audited, I would offer to prepare a W2c and a 1040X but point out that the tax will not change, and hopefully the auditor will agree to let it go, because there's zero money in it for the IRS. 1 Quote Link to comment Share on other sites More sharing options...
TaxCPANY Posted February 25, 2021 Report Share Posted February 25, 2021 In a different practitioners' chat t I ran across the following fix: "When the omission of health insurance from a shareholder's W-2 is discovered, a (second) W-2 is prepared, showing the health insurance as wages in Box 1 and Box 14 (indicated as S Corp Med Ins). All other boxes are -0-. This way Notice 2008-1 is complied with." Works for me. 1 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 25, 2021 Report Share Posted February 25, 2021 49 minutes ago, TaxCPANY said: In a different practitioners' chat t I ran across the following fix: "When the omission of health insurance from a shareholder's W-2 is discovered, a (second) W-2 is prepared, showing the health insurance as wages in Box 1 and Box 14 (indicated as S Corp Med Ins). All other boxes are -0-. This way Notice 2008-1 is complied with." Works for me. Close. The second W2 should also show the amount as state taxable (if the state has WH), and possibly some local taxes as well. 2008-1 states the amount is wages, so Box 1 resolves the federal issue. But other boxes/figures may need to be handled as well. In other words, the amount is taxable wages, unless specifically excluded (such as SS, Medi, FUTA, CA SDI, CA ETT, and SUTA). Gets worse, as some local items look at one amount as taxable and other taxes look at something else (sometimes varying within one state!). Worker's comp wages are another possible issue, one where the "company" may not want to include, but if the shareholder/employee needs to make a claim, they will rue not having WC wages reported correctly Does not resolve the employer issue, as the employer would have to create a W3c and 941x, and come up with some sort of note/excuse for not including the amount for WH calculation(s). Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 25, 2021 Author Report Share Posted February 25, 2021 I'm ready to give everyone their documents back and retire! Thought I'd move on to another entity return for a while, even though I hate going back and forth between S-corporations and partnerships which are more different than they should be. So, I open a partnership and find on their P&L $31,614.14 in Reconciliation Discrepancies and $19,153 in Ask My Accountant and handwritten on the bottom is $1,700 Form 1099 !! Time for wine and laundry! I think I'll put all my entities on extension, including the S-corporation that this thread is about and who will certainly fire me because he always wants to file by 1 February! Rant over until tomorrow. Thanks for talking me through this. 1 2 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 26, 2021 Report Share Posted February 26, 2021 No Words! Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 26, 2021 Author Report Share Posted February 26, 2021 I know! I can't even form coherent questions to that partner. Maybe after a glass of wine. Please extend the season to 15 July so I can afford a mental health day or two, or a week. Of course, that may not help my entities due in two weeks... 3 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted February 26, 2021 Report Share Posted February 26, 2021 5 hours ago, cbslee said: classify the premiums as a M - 1 adjustment If I'm not deducting it on the 1120S, I would just add it to distributions, but M1 does keep it separate and more clear. Quote Link to comment Share on other sites More sharing options...
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