As I’m sure many of you know, 2% shareholders have their health insurance reported as Box 1 wages, and then take the SEHI deduction to effectively zero out those wages for income tax.
Box 1 wages are subject to withholding, but it is clearly silly to remit income tax in payroll that IRS will not keep because of your SEHI deduction. Interest-free loans to the government are a bad idea.
Ergo, I would like to arrange my W4 with the payroll service (I use Gusto, if it matters) such that my net withholding effectively ignores my health insurance as taxable income while payroll correctly withholds income and FICA taxes on my cash wages. Is this possible and how is it done?
If you’re paying FICA on your 2% shareholder health insurance you’re doing it wrong. From S-Corporation Compensation: “However, these additional wages are not subject to Social Security, or Medicare (FICA), or Unemployment (FUTA) taxes”