For more “Talk To TaxMama” articles by Eva Rosenberg, MBA, EA, click here.
I recently had a conversation with Kris Hix, an enrolled agent (EA) who, among all the other things she does, is an Intuit “Ask the Expert” contributor and develops self-study questions for courses at CPE Link. So she spends a lot of time researching common – and obscure – issues.
She asked me this question which generated some curiosity in my mind.
Consider an S corporation with a shareholder who owns 2 percent or more of the company. (Most of our S Corp clients own 100 percent, right?) We know if the company pays for their health insurance, that needs to be added to their wages, right?
But what about when the owners are covered by their workers’ compensation insurance policies?
Well, it turns out that is also considered health insurance coverage and must be added to wages. (See all the references to “accident” and health insurance?) In fact, in Chapter 6 of IRS Publication 535, this is specifically addressed. (See item No. 6 under “Deductible Premiums.”)
The next logical question is: Does your payroll service pick this up and add it to wages? Payroll services do have a setup screen for new employees. Do they have a box to check if the new employee is a 2 percent shareholder of their S Corp? I suspect they all do, right?
So once you check that box, does your software pick up your shareholder’s share of workers’ comp premiums?
Is it not picking up the premiums because you are not entering the cost somewhere, like into an employee benefits field? After all, your payroll software probably isn’t tied directly to your disbursements journal. So your payroll software has no way to draw this information into the system.
Frankly, I never thought about it because I don’t have any shareholder clients who are paying workers’ comp premiums on themselves. But you might have this situation occur. (The discussion arose because another EA stumbled across that reference in Publication 535 and asked Kris about it.)
Folks, because you’re about to finish up your 2013 payroll tax filings, you still have time to correct this for last year.
And for 2014, it’s time to look more closely at your payroll system and find out how to get your officers’ workers’ comp premiums into the system throughout the year.