Sep IRA and health insurance premium and shareholder w-2 of S-Corp

[Sam Hopi]

Hi , Assume my reasonable Compensation or W-2  as sole owner of S-Corp for all year would be $85000. Let me know, are health insurance premium, SEP contribution a kind of most of fringe benefits included in $85000. If yes, net pay can be reduced when I get my paystub. 

Questions: 

If I want to do contribution through Fidelity, my max SEP contribute is 25% * 85000=$21250 so can I contribute gradually by each paystub?

Can I contribute in 2024 before March 15 for 2023 tax return in lumpsum from my personal checking account? or should pay directly from S-Corp checking if so but I confused about my paystub and my W-2 that dose not show anything for this contribution?

And what can I say to payroll provider to handle for this contribution which I am going to make in Fidelity, what box of my W-2 should be affected indicated for this contribution?

And what happens on federal tax withholding for box 2? Should I tell them, payroll provider.

I need to figure out step by step. I would greatly appreciated it!

[Anonymous_]

Perhaps @dmertz can answer this retirement plan question

[dmertz · Accepted solution]

The SEP contribution is an employer contribution, in this case a deductible business expense on the Form 1120-S.  The maximum contribution is 25% of wages reported on the W-2 and the same percentage of compensation must be contributed to a SEP IRA for each eligible employee of the S corp.  The deadline for S corp can make the contributions to the SEP IRAs is the due date of the S corp's tax return, including extensions.  The S corp can do that either periodically or all at once.  SEP IRA contributions appear nowhere on a W-2.  Your payroll provider has no involvement in making or reporting SEP IRA contributions.

Health insurance premiums paid for a more-than-2% shareholder-employee must be included in wages on the W-2 and the shareholder-employee takes the self-employed health insurance deduction on their individual tax return.  If these payments are such that they are not subject to Social Security or Medicare taxes, the payroll company needs to know that these particular wages are for such a health insurance plan so that they can prepare the W-2 properly.  When entering the Schedule K-1 (Form 1120-S) into TurboTax for your individual tax return, you must mark the box in TurboTax to indicate you personally paid for health insurance and the S corp paid you wages, then enter the amount of wages from box 5 of your W-2 and the amount you paid for health insurance.  TurboTax will put the slef-employed health insurance deduction on Schedule 1 line 17.

[Sam Hopi]

Thanks dmertz and was very helpful.

I read the other Turbo tax reply said : Sep contribution should be box 12 on W-2? I confused.

I am 100% owner S-Corp and employee shareholder and my wife is an employee, should I contribute for her as well is it necessary?

How about 401K and solo 401K for me and my wife? what happens on W-2 boxes?

How much can S-Corp contribute to my 401-K and how much can I contribute to my 401-K as an employee? and my wife?

And above question for Solo 401-K as well?

How about Simple IRA ELECTIVE OR NON-ELECTIVE I dont know about the differences?

Is HSA included box1 W-2 ? I mean should pay FICA for HSA? and State wages included HSA?

Please clarify for State wage for all above SEP, 401-k, solo 401-k, Simple and HSA.

[dmertz · Accepted solution]

"I read the other Turbo tax reply said : Sep contribution should be box 12 on W-2? I confused."

Only salary deferrals to a SARSEP (SAlary Reduction SEP) established before 1997 are reported on a W-2.  Since you are asking the question now, I'm sure it's a safe bet that you do not have such a SARSEP, so nothing about a SEP contribution is reportable on a W-2.  Some employers will mention the SEP contribution in box 14 of a W-2, but that's for your information only and is otherwise not reportable.

To be eligible for a SEP contribution, the employee must meet the eligibility requirements that you have in specified in the SEP plan.  If both you and your wife meet the eligibility requirements, the contribution as a percentage of wages is required to be the same for both of you.  For example, if the contribution percentage is 25% (the maximum permissible), you have wages totaling $60,000 and your wife has wages totaling $40,000, the S corp must make a $15,000 contribution to your SEP-IRA and must make a $10,000 contribution to your wife's SEP-IRA.  Of course the S corp could elect a smaller percentage for the contributions if it so chooses as long as the percentage is the same for all eligible employees.

You typically can have only one plan, so if you establish a solo 401(k) then you would not establish a SEP plan.  The employer contribution for a solo 401(k) can be no more than the contribution to a SEP plan, but might be less because with a Solo 401(k) plan the employee can make elective deferrals (which would need to be reported in box 12 of the employee's W-2) and total additions are not permitted to exceed compensation.

Contribution limits to a SIMPLE IRA are subject to different limits.  In most cases a Solo 401(k) would make more sense than a SIMPLE IRA, but I suggest reviewing IRS Pub 560 for the detailed differences.  That publication consists of 43 pages that are too much to repeat here.