Business Return - Amount for Employee Wages

[brough-hoops]

I am attempting to enter employee wages expense and am confused by the note "The amount you enter must match box 1 on your form W-3 for 2022."

None of the amounts in box 1, 3 or 5 of our W3 match the gross wages we actually paid to employees.  The amounts differ by exactly the amount of employee pre-tax deductions for their AFLAC supplemental insurance.  For example, gross wages $100,000.  Employee pre-tax deductions $5000.  Boxes 1, 3 and 5 of the W3 all register $95,000.  There is no employer contribution to this plan, so we are not deducting any health insurnace expenses anywhere else in the business return.

If we follow the instructions and enter W3, Box 1 numbers it seems that the business is forfeiting $5000 woth of legitimate business expenses.

Given that W2's and the W3 primarily serve to document taxable income for the employee, Is it appropriate in this case to disregard the note in the software and enter $100,000 as employee wages?

Please advise. Thanks

[ThomasM125]

You can get a deduction for the gross wage amount ($100,000) , as that is what you paid the employees. The issue is whether you report it as wage expense for $100,000 or you classify the deduction as employee benefit programs (line 18 on form 1120-S or line 19 on form 1065) for $5,000 and wage expense of $95,000. The advantage of listing the wages as $95,000 is that the IRS may compare that number to your W-3 form and if the two numbers don't match it may represent a red flag that could open your reporting up to more scrutiny.

[brough-hoops]

Thank you for that reply.  I like your suggestion of reporting these items so as not to draw unnecessary fire.

We are a single-member LLC.  From what I can tell the forms you mentioned previously, the 1120-S and 1065, are for S-corps and partnerships respectively.  So I'm guessing we would record the premium payments in Employee Expenses --> Employee Benefits on Schedule C.

Within Employee Benefits there are two general categories, "health insurance premiums" and "other employee benefits." The two PT products offered are accident and critical care.  My understanding is that neither of these qualify for "health insurance" and should go under "other employee benefits."  Is this correct?

[JamesG1]

Yes, report the expenses on line 14 Employee benefit programs.

Instructions for Schedule C (page C-7) states:

Line 14 

Deduct contributions to employee benefit programs that are not an incidental part of a pension or profit-sharing plan included on line 19. Examples are accident and health plans, group-term life insurance, and dependent care assistance programs.

@brough-hoops 

[brough-hoops]

Last question, I promise.

I understand the need to enter this on line 14.  Does it matter if pre-tax deduction items from Aflac like "accident" and "critical care" go on line 14.A or 14.B?  14.A specifically says employee health insurance.  14.B is labeled other employee benefits. 

I was under the impression that supplemental insurnace like this didn't quite rise to the level of health insurance.

Any thoughts?

[PatriciaV]

Schedule C Line 14b is the better choice for employee benefits other than health insurance and pensions.

Medical insurance is typically limited to payments for the diagnosis and treatment of disease. This definition doesn't include accidents or supplemental income.