Healthcare deduction and W-2 wage possible issue with TurboTax Business 2020 (not Home and Business)

[info14]

Single member LLC taxed as s-corp

Reasonable salary paid to owner (me) and reported on W-2 form as wages

The first time that my healthcare coverage premiums were paid for by company

Other tax professionals recommend that for LLC as an S corp, the LLC members are treated as employees and the premiums are reported as part of the W-2 gross wages ("plan is considered established by the business") and then deducted on my personal return - Form 1040, line 10a.

I enter the W-2 wages into TurboTax Business 2020 as shown on my W-2.  Call this value X.

Under Federal Taxes - Deductions - Compensation and Benefits - Insurance, health, and other benefits, I enter my health insurance amount total for Officers (just me).  Call this value Y.

I am a bit confused as my W-2 form shows my box 1 gross wages as X but TurboTax Business (and the draft K-1 it produced for me to preview) shows my total wages as X+Y. 

Right now, TurboTax Business and TurboTax Home and Business 2020 may be viewing my salary as X+Y and might think I owe self employment taxes on X+Y, not just X as noted on the w-2 (the withholding taxes on the w-2 were calculated based on X, not X+Y).

I think that my intention is for X to represent all w-2 income including the health benefits so as not to owe additional SE taxes.

Just a guess:  if the above is not the right way for things to be done, maybe I should take off the benefits info added to TurboTax Business so that my total salary matches exactly what's on my official w-2, and then just take the self-employed health insurance deduction on my 1040.

My W-2 compensation is reasonable whether it's X or X+Y but I just want to make sure that TurboTax is accurately showing things so that there are no discrepancies or unexpected taxes owed.

Should I be making any adjustments anywhere?  Any recommendations?

[gloriah5200]

In order for you to deduct on your individual return the health insurance premiums you paid, they must be reported to you on your W-2 as taxable income or they do not qualify to deduct on  your individual return.

The taxpayer received wages from an S corporation in which the taxpayer was a more than 2% shareholder. Health insurance benefits paid for the taxpayer are shown in box 1 and box 14, Form W-2

For more than 2% shareholders, a policy can be either in the name of the S corporation or the shareholder. If the policy is in the shareholder’s name and the shareholder pays the premiums, the S corporation must reimburse the shareholder and report the premium amounts on Form W-2 as wages. (Notice 2008-1)

I agree that it would be better for X to be wages + the premiums for se health insurance.  If an s corporation shareholder does not receive reasonable compensation and cash and property distributions are received during the year, then IRS could re-classify the cash and property distributions as wages and generate payroll taxes adjustments for the s corporation.

If TurboTax is generating additional payroll taxes due based on the addition of the se health insurance premiums, then you may need to get a corrected W-2 to use instead, depending on the exact situation.

[info14]

Thank you, this is helpful. I have followed your answer and also referred to this page I just came across: https://www.wegnercpas.com/s-corporation-health-insurance-reminder/

After reading their instructions for my situation (S corp benefits paid to 2% or greater shareholder-employee) I have filed a w-2c corrected w-2 with a correction to reduce the SS and Medicare box 3 and 5 amounts by the amount of the premium, and also noted in box 14 the amount of the insurance (y). Now I have to file Form 941-X due to overpayment of SS and medicare taxes for 2020.

In the Salaries and Wages paid of TurboTax Business 2020 I have entered in the box 3 / box 5 amounts (same number - essentially x minus y) so that when added together with the benefits, it agrees with the w-2 box 1 wages number. Seems like the correct workaround in the software to make sure nothing is double counted.

It seems like TurboTax Business does not even mention the separate numbers or the healthcare benefits number anywhere in the filings or calculation worksheets, and it just adds together benefits and salary for total compensation, so it doesn't seem to make a difference to TurboTax Business whether it's one number x or (x-y) as one number and y as the benefits number, added together. The only place it seems to matter is when I am filing my personal return, to take the SE health insurance deduction and when entering in my w-2 information.