We've put together the necessary information to run your medical, dental, and vision insurance through Gusto.
Note: COBRA health insurance premium payments obtained from a previous W-2 employer can not be run through the S Corp and reported in Gusto.
Why are we running insurance through payroll?
Why aren't COBRA premiums eligible for the self-employed (SE) health insurance deduction?
How do I set up my health insurance in Gusto?
How will I make my insurance payments?
How will my premiums be reported in my books?
What if I have premiums paid that are not reported in Gusto?
Why are we running insurance through payroll?
For reporting purposes, health insurance premiums (excluding COBRA premiums) paid on behalf of a greater than 2% S Corp shareholder-employee are deductible by the S Corp and reportable as wages on the shareholder-employees Form W-2, subject to income tax withholding.
However, these additional wages are not subject to Social Security, Medicare (FICA), or Unemployment (FUTA) taxes if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.
The health insurance plan should be purchased from a government health insurance marketplace or through an insurance broker in the shareholder's name.
Sources: IRS: S Corp Compensation Medical Insurance
Why aren't COBRA premiums eligible for the self-employed (SE) health insurance deduction?
COBRA premiums are not eligible for the SE health insurance deduction because eligible health insurance policies must either be in the name of the S-corp or the owner of the S-Corp. COBRA is a continuation of a prior employer’s plan therefore the policy is in the employer’s name making it ineligible for that deduction. The COBRA premiums can be taken on your personal tax return (Form 1040) as an itemized deduction but certain thresholds need to be met to receive a benefit. Premiums are not to be run in Gusto.
Are premiums paid to a healthcare sharing ministry eligible for the self-employed (SE) health insurance deduction?
Unfortunately, the answer is no. Traditionally, the IRS has not considered healthcare sharing ministry plans to be equivalent to traditional health insurance, which meant that the premiums paid were not eligible for the SE health insurance deduction. In 2020, proposed regulations were introduced to treat healthcare share ministry plans similar to traditional health insurance. However, these regulations were never formally approved, and these plans continue to be treated differently from traditional health insurance by the IRS. They are not eligible for the SE health insurance deduction, and premiums are not to be run in Gusto.
How do I set up my health insurance in Gusto?
Let your onboarding accountant, MRM, or accounting advisor know to add your health insurance premiums to your Gusto account as a benefit to be reflected in payroll.
How will I make my insurance payments?
You’ll make the payments to your benefits provider from your business checking or credit card account. Gusto does not remit payment to 3rd-Party benefits providers, so please ensure you make these payments yourself. Payments from your business checking or credit card should be applied to the Payroll Liabilities account in your accounting software.
How will my premiums be reported in my books?
The information in Gusto will be automatically synced to your Collective books. The Gusto entry will treat the premiums as an expense on your P&L and also an amount to be paid on your balance sheet (Payroll Liabilities). The payments of the premiums are then categorized as a Payroll Liability to zero out the balance due.
What if I have premiums paid that are not reported in Gusto?
Email hello@collective.com and your Accounting Advisor can help make any updates or corrections.
Have any other questions?
Reach out to the Collective team at hello@collective.com 😉
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.