Reconciling S-Corp Healthcare Insurance with the 1120S Balance Statement

[TJScott]

My wife, Jean, is the sole member of her LLC and she files an 1120S. The LLC pays her healthcare insurance. I am having trouble with the Balance Sheet reconciliation on the 1120S. Here’s the scenario:

• In QuickBooks Online, the Florida Blue premium is a debit to the account, “S-Corp Health Insurance” and Jean’s paycheck (Intuit Payroll) generated a credit to that account.
• On Dec 31, 2023, the balance in that account was ($2,307.26) only because the Jan 1, 2024 premium was charged on Dec 31. On Dec 30, the balance was $0.00.
• In TurboTax Business, Jean’s total compensation including healthcare (per the instructions) falls on the 1120S, line 7.
• S-Corp healthcare insurance per her W-2 is $22,589. This is also included on line 8 per the instructions. So, the same expense is charged twice, making it a nice tax deduction against K-1 twice, though Jean is paying regular income and payroll tax on the benefit.

Is this correct so far?

• On the 1120 S, the Income Statement balances perfectly when I add the $22,589 to my P & L.
• On the 1120S, the Assets of the Balance Sheet match perfectly to QuickBooks Online.  
• Total Liabilities, Capital, and Retained Earnings is short by $24,821.

How do I account for the ($2,307) above and the $22,589 deducted twice on the 1120S Balance Sheet so it balances?

Do I create any additional entries in QuickBooks Online to match these things up?

• Those two numbers total $24,896, only $75 off. I can definitely reconcile that with a balance adjustment.

Is that OK? Does it ever end up matching perfectly to the dollar?

Thanks!

[Mike9241 · Accepted solution]

are you saying that on page 1 of the 1120S the health insurance was included on both lines 7 and 8. Don't know where you read it goes on both but since she's an S-Corp officer it only goes on line 7. line 8 would be for 2% or more shareholders who are not officers.

[Rick19744]

We need to wait for your response to @Mike9241 question.

However, it sounds as if you have the health insurance entered twice in TT.  I would recommend going back through your input to double check this.

The balance sheet should be based on your books and records.  As a result, you would need to have an M-1 for expenses on your books not on the return for the $2,307.26 amount.  You would then need to reverse that adjustment on next year's tax return.

[TJScott]

Ohhhh! OK, that's super helpful. Thank you. 

I just re-read that section in Turbo Tax, "Enter Insurance and Other Benefits"

• Officers who own 2% or less.
• Shareholders who are not officers and own 2% or more.
• All other employees. 

Jean is an officer who owns >2%, so not included here. It's noted in fine print (should be bold, really) "For officers who are >2% owners, make sure you've included the amounts in their compensation", which is it since it's included on her W-2 paycheck as "S-Corp Healthcare Insurance". 

I've done this return myself for for a few years now. I totally missed that delineation there.  Thank you! : )  

----

Follow up question, if I may: The business buys the insurance and that generates a tax deduction against K-1 income, *but, it goes on Jean's paycheck as income, taxed at the normal rate plus payroll taxes. The result seems to be that she is paying payroll taxes on the healthcare benefits. (?)

Would it be more advantageous for Jean to buy the insurance personally, outside the business, then? If not, where is the tax advantage? 

Thank you! 

[TJScott]

@Mike9241 got it right for me. I looked at this thing about a dozen times, start to finish, yesterday and totally missed that slight difference between officer and non-officer 2% plus owners.

The rest is pretty easy. I might just move the charge on the credit card account up one day to Jan 1, which is when it was due to be paid, if I need to to make it work. 

Taxes are hard! I appreciate you all. 

Thank you, @Rick19744!  🙂 

[Rick19744 · Accepted solution]

A couple of follow-up comments to your questions:

• While the health insurance is included in compensation, it is not subject FICA or FUTA. 
• This is the same for partnerships (another pass-through entity).
• Most likely a plan through a business is best, but can't say for sure.  If Jean were to purchase an individual plan, the $$ would need to come out to her to pay the premium, and in order to do that, compensation would need to be increased....essentially a wash in my mind.
• Don't forget the health insurance deduction on the 1040 for this premium included in wages.
• And adjusting for the health insurance payment on 12/31 makes sense to eliminate the M-1.

[TJScott]

That helps perfectly. Thanks so much! : ) 

[Rick19744]

Welcome