Congratulations! You’ve embarked on the wild ride of running an S-Corp, where you’re the boss and the employee rolled into one. But now comes the tricky part: paying yourself while keeping Uncle Sam happy. Let’s dive into how you can make one payroll work for the year while leveraging your S-Corp to cover your health insurance.
Step 1: Why One Payroll?
If you’re the only employee of your S-Corp, running just one payroll simplifies life and minimizes paperwork. The IRS requires S-Corp owners to pay themselves a “reasonable salary” for work performed. By running payroll just once a year, you can meet this requirement while keeping admin costs low.
Step 2: Calculating the “Reasonable Salary”
“Reasonable salary” is IRS-speak for “don’t lowball yourself.” Research industry standards for your role and ensure your salary reflects what someone in your position would earn. Need a ballpark? Websites like the Bureau of Labor Statistics (bls.gov) can help you find data for your field.
Step 3: Covering Health Insurance Through Your S-Corp
If you’ve already paid for family health insurance out-of-pocket, your S-Corp can reimburse you, but it has to follow the rules. Here’s how to handle it:
- Adopt a Cafeteria Plan: This is an employee benefit plan that allows your S-Corp to cover qualified health expenses, including premiums. While it sounds like a lunch menu, it’s actually a legal mechanism for paying tax-free benefits.
- Get a Payroll Service: Many payroll services can set up and administer a cafeteria plan for you. This is crucial because the IRS loves documentation. Some options include Gusto, ADP, and QuickBooks Payroll.
- Reimburse Yourself: Once the plan is in place, your S-Corp can reimburse the premiums you’ve paid. These reimbursements become a deductible business expense for your company and taxable income for you, but only in the most tax-efficient way.
Step 4: Timing Is Everything
Your payroll should include your salary and any reimbursements for health insurance. Since this will likely be your one payroll for the year, you’ll want to time it strategically — before December 31st. That way, everything is tidied up for year-end reporting.
Step 5: Taxes, Taxes, Taxes
When running payroll, your S-Corp must withhold federal and state income taxes, Social Security, and Medicare. The payroll service can handle these calculations and filings for you. It’s a small price to pay for avoiding IRS letters that start with “Dear Taxpayer…”
Final Thoughts
Running one payroll a year and reimbursing health insurance premiums might seem complicated, but it’s a savvy way to maximize your S-Corp benefits while staying compliant. With the right tools (and maybe a good payroll service), you can make this process seamless. Just be sure to consult your accountant for tailored advice — after all, they’re the real heroes here.
Now, go forth and pay yourself like the awesome employee you are!
AI Art Prompt:
“An impressionist depiction of a small business owner at a desk, signing a single paycheck with a sense of satisfaction, while a framed health insurance document hangs in the background, symbolizing order and achievement in simplicity.”
Follow me for more tips and let me know in the comments how you manage your S-Corp payroll!