Share holder medical expense

[gluck]

I have a share holder who is also an employee of the firm. We pay him for his medical expense. Now this additional medical reimbursement should have federal withholding but should be exempt from FICA and medical. How can we do this?

[Paul Mayer]

See the Tutorial on how to setup and use non-taxable deductions on your CD or at http://zpay.com.

Then add the amount to the employees pay and deduct it with that deduction.

[gluck]

Thanks. I think I am still missing something.
Here is an example of what I did -
Assuming employee pay is $2500 and medical is $250
As you said I added the amount to employee pay making it $2750. Also I setup a medical deduction of $250 (Medicare and SS exempt).
Now it does the right calculations in the tax part but the net salary is lower than what it should be. I think it is because of the deduction. What am I doing wrong?
The original net pay was 2235.XX and now after deduction it is 2201.XX. Ideally the check should be $2235 + ($250 - minus tax on $250). How do I get this figure?

[Paul Mayer]

The only way to figure out the magic number is by trial where you test a dollar amount until the net comes out to what you want. Keep adjusting until you get that magic number.

[gluck]

The only way to figure out the magic number is by trial where you test a dollar amount until the net comes out to what you want. Keep adjusting until you get that magic number.

I don't get it. What do I need to adjust? Do I need to override all calculations?


How does Zpay work in case of reimbursements?

[gluck]

ok this is what I did.
scenario - $2500 base pay $250 medical
1. Increase pay to $2750 ($2500+$250)
2. Add medical insurance ($250) as deduction exempt from med/ss.
3. Hit pay and then add a negetive deduction of $250 on the pay screen and hit tab.

Is this what you mean by adjusting figures?

Will this adjustment mess up my w2?

[Paul Mayer]

Actually since you are going to have the employee pay taxes on the amount paid for them.

In this example, let's say the amount is $250.00.

Set the constant in the employee setup for the deduction as $250.00

Add $250.00 to the gross pay when paying.

The employee will pay the taxes needed and $250 will be deducted when it is calculated.

Unless you want to pay the taxes, then it's going to get complicated.

[Paul Mayer]

I forgot to mention this important fact:

Never enter a negative deduction when a deduction is set as non-taxable as it will break all reports to an unbalance.

[Paul Mayer]

You know, I went back to your original question and re-read it again:

"I have a share holder who is also an employee of the firm. We pay him for his medical expense. Now this additional medical reimbursement should have federal withholding but should be exempt from FICA and medical. How can we do this?"

I don't really think what I told you will work as it's is actually putting the extra in but then after partially taxing it, taking it back out and then reporting it as exempt from FICA and Medicare on the W2 at the end of the year.

But since it is being deducted from his pay, you really should be writing the check to his provider for the medical afterwards. This is where the problem is. I guess you could give him a separate check or actually pay his medical provider.

[gluck]

Well the shareholder holds more than 2% of stock so any health insurance premium that the company reimburses him needs to be subject to Federal Taxes.
Anyway I figured this out like this

$2500 base pay $250 medical
1. Increase pay to $2750 ($2500+$250)
2. Add (Non Taxable) Medical insurance ($250) as deduction exempt from med/ss. This will withhold Federal taxes but the FICA and Medicare remain same as base pay ($2500).
3. Add a Taxable dummy deduction - Medical Reimbursements.
4. Hit pay and you get the net pay $250 less than desired. (This amount is subject to Federal and State withholding for $2750 but the Fica and Social Security wihtholding is for $2500)
5. Add a negetive deduction of $250 on the pay screen for the dummy deduction and hit tab.

This shouldn't impact my W2's as the negative amount is for a taxable deduction.

[Paul Mayer]

Yes, it looks like that will do what you need. Good work around.