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Salary Deduction in Step-by-Step

Forum|Forum|2 years ago
March 7, 2024
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Re: TurboTax for Business S-Corp:

The way health insurance is handled in the step-by-step needs to be fixed. If you enter an amount for health insurance in the box provided for that in the step-by-step; behind the scenes, TurboTax adds it into the salary line and the health insurance expense winds up getting double-counted. (Once as part of the salary deduction and once as a separate deduction).

I think I have found a way to avoid the double-counting, but the way this is implemented is very convoluted and likely to cause a lot of confusion.

TurboTax Business Windows

Best answer by ThomasM125

I believe you are entering health insurance of a more than 2% shareholder (an owner.) If so, the health insurance is supposed to be added to the shareholder's wages and reported on that individual's W-2 Form as wage income. So, instead of reporting it as health insurance on the S Corporation return, it gets reported as wages. In this instance, the owner health insurance would be excluded from the health insurance entry on the S corporation return.

The owner would then report the inflated wages on his or her individual tax return, and then deduct it as self-employed health insurance to the extent it is allowed on the owner's individual tax return. So, the insurance deduction appears on the individual tax return of the more than 2% shareholder of the S Corporation.

When you issue the W-2 form, the health insurance would be added to the wages in box 1, but not to taxable social security or Medicare wages in boxes 3 and 5. You can read more here: Deducting S Corp Health Ins premiums

T

ThomasM125Answer

I believe you are entering health insurance of a more than 2% shareholder (an owner.) If so, the health insurance is supposed to be added to the shareholder's wages and reported on that individual's W-2 Form as wage income. So, instead of reporting it as health insurance on the S Corporation return, it gets reported as wages. In this instance, the owner health insurance would be excluded from the health insurance entry on the S corporation return.

The owner would then report the inflated wages on his or her individual tax return, and then deduct it as self-employed health insurance to the extent it is allowed on the owner's individual tax return. So, the insurance deduction appears on the individual tax return of the more than 2% shareholder of the S Corporation.

When you issue the W-2 form, the health insurance would be added to the wages in box 1, but not to taxable social security or Medicare wages in boxes 3 and 5. You can read more here: Deducting S Corp Health Ins premiums

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chuck3Author

Thanks, I think your response is correct; however, I believe that the way this is implemented in the TurboTax step-by-step instructions needs to be improved. In my opinion, there should be a direct one-to-one correspondence between the data entered in the step-by-step and the data entered on a form. There shouldn’t be any “behind the scenes” manipulation of the step-by-step data that isn’t completely transparent to the user.

For example, I entered salary data and health insurance data separately which was probably incorrect from a tax perspective as you pointed out, but TurnoTax decided on its own to combine those amounts without any warning to me or explanation of why it was doing that.

For the TurboTax product to be effective, I believe thst the step-by-step input process should be better designed to be more user-friendly to non-accountants like myself.