How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask CGCPA Your Own Question

CGCPA
CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience:  over 40 years experience in tax matters
Type Your Tax Question Here...
CGCPA is online now
A new question is answered every 9 seconds

I am the sole employee of an S-corp and have a SEP plan with

Resolved Question:

I am the sole employee of an S-corp and have a SEP plan with a 3 year wait for new employees. I am about to add an employee but want to keep my SEP plan for the next 3 years. Rather than set up a simple IRA now, I plan to contribute funds directly the the employee's personal IRA. I would also like to pay the employee a monthly stipend to cover the cost of her being added to her husband's medical insurance plan. 1) Can I deposit funds directly into her private IRA without taking out social security tax and medicare tax or any other withholding? 2) do I have to withhold social security tax and medicare tax from the voluntary heath insurance payments? I assume both payments are taxable as income to the employee and the employee, if elegible can deduct the IRA payments from income.
Submitted: 2 years ago.
Category: Tax
Expert:  CGCPA replied 2 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

1. You will need to include it in her wages. You will also need to deduct Social Security and Medicare taxes. She will then need to deposit the amount into her IRA. You can accomplish the IRA deposit for her by reflecting the gross payroll and the aforementioned taxes in her wages and then making an additional payroll deduction for her IRA. She will then show her new gross wages as income and claim an IRA deduction. There is, unfortunately, no way around the two taxes.

2.Health insurance benefits are another matter and will depend on how you elect to handle this. If you are providing health insurance for the other employee (yourself) you already know that it must be included in your income as a 2% or more shareholder. However, for employees other than yourself, you can provide full company paid benefits. Then the insurance will be paid to her without taxation.

You should also be aware of the Small Business Healthcare Tax Credit. Here is some information from the IRS concerning this:

About the Small Business Health Care Tax Credit

Video: Small Business Health Care Tax Credit-Updated English
| Spanish
| ASL

IR-2011-90, Sept. 7, 2011

WASHINGTON - As the upcoming filing extension tax deadlines approach, the
Internal Revenue Service, in partnership with the Department of Health and Human
Services, is announcing a new round of outreach to small employers and the
professional service providers they rely on to encourage them to review the new
Small Business Health Care Tax Credit to see if they are eligible.

"As the filing deadlines approach, we want to make sure that small business
owners don't leave any money on the table," said IRS Commissioner Doug Shulman.
"Small businesses that offer health insurance should learn about this credit and
claim it if they are eligible."

The small business health care tax credit was included in the Affordable Care
Act enacted last year. Small employers that pay at least half of the premiums
for employee health insurance coverage under a qualifying arrangement may be
eligible for the small business health care tax credit. The credit is
specifically targeted to help small businesses and tax-exempt organizations that
primarily employ 25 or fewer workers with average income of $50,000 or less.

Small employers face two important tax filing deadlines in coming weeks:


  • September 15. Corporations that file on a calendar year basis and requested
    an extension to file to September 15 can calculate the small employer health
    care credit on Form 8941 and claim it as part of the general business credit on
    Form 3800, which they would include with their corporate income tax return.
  • October 17. Sole proprietors who file Form 1040 and partners and
    S-corporation shareholders who report their income on Form 1040 and request an
    extension have until October 17 to complete their returns. They would also use
    Form 8941 to calculate the small employer health care credit and claim it as a
    general business credit on Form 3800, reflected on line 53 of Form 1040.

In addition, tax-exempt organizations that file on a calendar year basis and
requested an extension to file to November 15 can use Form 8941 and then claim the credit on Form
990-T, Line 44f.

As these 2010 tax return deadlines approach and businesses begin planning for
the end of 2011 and 2012, the IRS's new outreach campaign will focus on working
with our partners:


  • The tax software industry to improve access to educational information and
    to help alert small employers and practitioners when taxpayers may be eligible
    for the credit.
  • Insurance agents, brokers and carriers who work with small businesses to
    help ensure that participants in the health insurance marketplace understand the
    features and benefits of the credit. The Department of Health and Human Services
    today sent an email to 2,000 agents and brokers alerting them to the credit for
    their small business clients.
  • The small business and tax practitioner community to provide additional
    webinars and educational opportunities about the credit.

Information will also be available through social media and other venues,
including IRS YouTube videos in English, Spanish and American Sign Language.
Targeted e-mails and tweets will be sent to the small business community and tax
preparers. The IRS's new outreach effort will remind employers about the
upcoming extension deadlines and will also provide details on other important
information about the credit, including:


  • Businesses who have already filed can still claim the credit: For small
    businesses that have already filed and later determine they are eligible for the
    credit, they can always file an amended 2010 tax return. Corporations use Form
    1120X and individual sole proprietors use Form 1040X.
  • Businesses without tax liability this year can still benefit: The Small
    Business Jobs Act of 2010 provided that for Tax Year 2010, eligible small
    businesses may carry back unused general business credits (including the small
    employer health care tax credit) five years. Previously these credits could only
    be carried back one year. Small businesses that did not have tax liability to
    offset in 2010 should still evaluate eligibility for the small business health
    care tax credit in light of this expanded carry back opportunity.
  • Businesses that couldn't use the credit in 2010 can claim it in future
    years: Some businesses that already locked into health insurance plan structures
    and contributions for 2010 may not have had the opportunity to make any needed
    adjustments to qualify for the credit for 2010. So these businesses may be
    eligible to claim the credit on 2011 returns or in years beyond. Small employers
    can claim the credit for 2010 through 2013 and for two additional years
    beginning in 2014.

In addition to today's IRS announcement, HHS posted additional information on
this credit to HealthCare.gov at: http://www.healthcare.gov/news/blog/smallbusiness09072011.html.
Additional information about eligibility requirements and calculating the credit
can be found on the Small Business Health Care Tax Credit for Small Employers
page of IRS.gov.

Customer: replied 2 years ago.
Thank you. Regarding the health insurance, I just plan to pay her $200 per month as a benefit so she can pay to be added to her husband's insurance plan. My company is not sponsoring that insurance plan. Can I pay that $ as a "health insurance benefit" and avoid the SS/Medicare taxes?
Expert:  CGCPA replied 2 years ago.
Yes, you can.
CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience: over 40 years experience in tax matters
CGCPA and other Tax Specialists are ready to help you
Customer: replied 2 years ago.
Last question: Is it best to just cut her a separate check each month for $200 and account for it on my books as a "health insurance contribution benefit", and is there some special way I need to report those payment for her w2 purposes? Sorry if the questions are basic, but this is my first employee. Thanks.
Customer: replied 2 years ago.
I want to make sure you saw my prior follow up question. I am new to this and not sure how long answers are supposed to take. Thanks!
Expert:  CGCPA replied 2 years ago.
You can simply cut her a check and label it as you have noted. No problem there. As far as how long it takes me to answer you, that depends on when I am in the office. I do not work on Sundays but other experts do.
CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience: over 40 years experience in tax matters
CGCPA and other Tax Specialists are ready to help you
Customer: replied 2 years ago.
FYI, I have been advised by my payroll company that the answer provided above is not correct and that as employer, I must pay the SS & Medicare tax on the $200 payment because my company is not a direct sponsor of the benefit plan.
Expert:  CGCPA replied 2 years ago.
I stand by my answer and suggest that you ask the payroll company for documentation to support their view. This is not payroll. Health benefits are not taxable to the employee and are deductible by the employer.
Expert:  CGCPA replied 2 years ago.

Here is an excerpt from the IRS:

 

Employer-Provided Health Coverage - Not Taxable; Reporting is Voluntary for All Employers for 2011 and Small Employers for 2012

Starting in tax year 2011, the Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. To give employers more time to update their payroll systems, Notice 2010-69, issued fall 2010, made this requirement optional for all employers in 2011. IRS Notice 2011-28 provided further relief for smaller employers filing fewer than 250 W-2 forms by making the reporting requirement optional for them at least for 2012 and continuing this optional treatment for smaller employers until further guidance is issued. Notice 2012-9, issued Jan. 3, 2012, restates and clarifies the guidance provided in Notice 2011-28, including the information on how to report, what coverage to include and how to determine the cost of the coverage.

The 2011 Form W-2 is available for viewing on IRS.gov. This is the W-2 that most employees will receive in early 2012. The form includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan.

This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income, and it is not taxable.

For more information, see the 2011 Form W-2, IR-2011-31, Notice 2012-9 (restating and clarifying Notice 2011-28), Notice 2010-69, Notice 2011-28, frequently asked questions and our multimedia products - an IRS YouTube video and a webinar, Reporting of Employer Healthcare Coverage on Form W-2.

Customer: replied 2 years ago.
Short of setting up a separate HRA account though a benefit company, from everything I have read, I don't see how it would be possible to just write a check each month to the employee. Do you have any references I can review to support your answer? Thanks.
Expert:  CGCPA replied 2 years ago.
I can only quote you common practice for this. It is a very normal thing and has not, in my experience, been challenged by IRS.
CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience: over 40 years experience in tax matters
CGCPA and other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.