2% SH Life Insurance payments

Hey there, SAustin. Let's get your life insurance set up.

You can follow the steps below on how to set up the insurance in QuickBooks Desktop. However, I'd suggest working with your accountant to help you with the taxability. They'd be able to help and guide on how these payments are treated.

Here's how:

1. Click Lists at the top menu bar and choose Payroll Item List.
   
2. From the bottom, click the Payroll Item button and select New.
   
3. Choose Custom Setup > Next.
4. Select Deduction and click Next.
5. Name the deduction item and click Next. This name appears on pay stubs and payroll reports. Enter the Agency for the employee-paid liability, and the account number and the liability account for the payroll item. Click Next.
6. Click Tax Tracking Type and select the type required for the correct tax classification. Click Next. In the Taxes window do not change any of the taxes and click Next.
   In the Calculated Based on Quantity window, select Neither and click Next.
7. In Gross vs. net, if the amount of deduction is a percentage (%) of employee's gross earnings, select gross. If it is a fixed dollar amount select net. If calculation varies from one employee to another, you will need to set up separate items. Taxability of item is based on tax tracking type selected, not by gross vs. net calculation.
8. Enter a default rate only if all employees pay the same amount for health insurance.
9. Click Finish.
10. Add the item to the appropriate employee profiles and enter an amount for each payroll deduction.

For more details, check out this article: Set up a payroll item for an insurance. On the same write-up, you'll find other insurance-related links to help you with your future task.

I encourage keeping us posted if there's anything else I can help you with. I'm always here to help you out.

Life insurance premiums for S-corp shareholders are not a deductible expense.  If paid by the S-corp, it needs to be paid for by reducing shareholder equity, not categorized as an expense.  Therefore, there is no taxability issue (unless there's insufficient equity).

Here is the exact section of the Internal Revenue Code § 264(a)(1):