Payroll Processing

• Payroll ACH will be initiated from the Client's bank account prior to each Friday pay date.
• ACH transactions typically occur on Tuesday or Wednesday of payroll week.
• All hours worked for non-salaried employees must be submitted by 12:00 PM, three business days before direct deposit (e.g., Tuesday at 12 PM for a Friday pay date).

Insurance Premiums

• Health, dental, and vision insurance premiums are ACH’d on the first payroll of each month.
• Failure to remit payment will result in benefit termination, retroactive to the first of the month.

401(k) Contributions

• 401(k) funds are ACH’d each payroll and deposited into employee retirement accounts as soon as administratively possible.

COBRA Administration

• COBRA notices are issued directly to employees by Fellow Travelers.
• The Client has no COBRA responsibilities.

Supplemental Insurance

• Premiums for Accident and Short-Term Disability Insurance are ACH’d near the 1st of each month from the responsible party.

Many accountants aren't sure how to record PEO-related wages and payments. There are two main approaches:

1. Treat PEO Payments as a Business Expense
Think of your PEO like any other service provider. Just as you'd record a consulting fee paid to Firm ABC as a business expense, you can label all payments made to the PEO (e.g., Fellow Travelers) as “PEO Labor Expenses / Liabilites” or similar. You can lump it into one line or itemize it further — e.g., “PEO Wages & Taxes,” “PEO Health Insurance,” “PEO 401(k) Contributions,” etc. You’ll have access to detailed reports in the payroll system to support either method.

2. Treat Wages as Paid Directly by Your Company
If your accountant prefers, they can itemize wages as if your company paid them directly. The fact that the PEO’s EIN appears on tax forms is not an issue — the IRS knows how to trace this. Fellow Travelers files supporting schedules (e.g., 941 Schedule R, annual 940) that tie your company’s EIN to those filings. Essentially, the PEO’s EIN is like a desktop folder the IRS opens to access your company’s payroll data.

For Payroll Tax Credits and Other Aid Programs

Wages paid through a PEO count as your company’s payroll for the purpose of tax credits and other subsidies. The IRS receives clear records via our filings.

State Payroll Filings

Fellow Travelers files annual wage reports in most states. You may need to cancel your state payroll ID or file zero-dollar returns. Some states still require you to file wage and/or unemployment tax returns under your own ID, while others allow us to file under our PEO ID. We will guide you thru the process with each state.

IRS Chart of Third Party Payer Arrangements: https://www.irs.gov/businesses/small-businesses-self-employed/third-party-arrangement-chart

This is a general overview for business owners on how health insurance premiums are handled for tax purposes. It won’t cover every scenario, but it should help you understand the core mechanics.

S-Corporations (or LLCs taxed as S-Corps)

• No FICA Tax on Premiums: Health insurance premiums are excluded from Box 3 & 5 of your W-2 (FICA wages). This can be done by ensuring no payroll deductions are taken — i.e., the company pays 100% of the premiums.
• Add Premiums to Box 1: Per IRS Notice 2008-1, premiums must be added to Box 1 of your W-2 (taxable wages) to claim the Self-Employed Health Insurance Deduction on your 1040 (Schedule 1, Line 16).
• Alternative: Pass Through via Profits: If you don’t adjust W-2 wages (i.e. ignore the IRS regs), the same tax result occurs with single-owner S-Corps and the IRS probably will not care if you adjusted the W2. With multiple owners and unequal premiums (e.g., due to age or dependents), can create imbalances and IRS Notice 2008-1 should be followed.
• On Your 1040: Use Schedule 1, Line 16 to deduct the premiums and reduce federal income tax. You can use W-2 Box 14 SEHI to get that amount. Box 14 SEHI should equal your pre-tax premiums for the year. The end result: no federal income or FICA tax on those premiums.
• Business Tax Treatment: Your business deducts premiums paid by the business as a business expense. Any employee contributions are considered wages (with corresponding FICA/benefit impacts).

LLC / LLP / Sole Proprietor (Not Taxed as S-Corp)

• Still Use Line 16 of Schedule 1: You can deduct premiums from federal income tax on your 1040, but not from self-employment tax (FICA).
• No W-2 Mechanism: Since you don’t receive a W-2, there’s no way to exclude premiums from FICA. All premiums are treated as profit, then deducted via Schedule 1.
• Tax Savings Example: If you pay $14,000/year in premiums, that’s about $2,142 in self-employment taxes (15.3%) that S-Corp owners don’t pay — a potential reason to elect S-Corp status.

C-Corporations

• Simple Treatment: C-Corp owners are treated like regular employees.
• Section 125 Compliance: Ensure you're using a compliant Premium Only Plan (POP) to allow pretax employee contributions.
• Subchapter T Election (Not Common):Subchapter T allows a C-Corp to pass profits through to owners like an S-Corp or LLC, avoiding double taxation. But it’s complex, rarely used, and only makes sense if all employees are also owners. You’ll need legal and tax pros to help — and the benefits should clearly outweigh the cost.

If you have employees and you pay at least 50% of their employee-only health insurance premiums (you don’t need to cover dependents), you may be eligible for a valuable health insurance tax credit.

Use this calculator to estimate the credit. Note: this credit only applies to premiums paid for employees—not owners. Also, it can only be claimed for two consecutive tax years, per IRS guidelines.

Important Eligibility Notes

• Don’t include yourself (as an owner) when using the calculator or applying for the credit.
• You must offer a qualified health plan through the Small Business Health Options Program (SHOP) Marketplace, or meet the IRS’s transitional relief criteria.

But… What Happened to SHOP?

Here’s the problem: the SHOP marketplace basically doesn’t exist anymore. Most insurers pulled out due to the technical and administrative burden of integrating with healthcare.gov. In most zip codes, you won’t find a single SHOP plan available.

Why? Large institutions like the IRS and insurance companies rely on outdated systems and have little incentive to invest the massive time and resources needed to make SHOP work. In many markets—like NYC and Philadelphia—only one or two carriers dominate or no differentiation is allowed, so there's little competition and no upside for insurers to support SHOP. They can still sell plans directly, and employers can still claim the tax credit thanks to transitional relief.

The Coin Flip Analogy

Imagine this: you flip a coin. If you call it right, you win $10 million. If you're wrong, you owe $10 million. That’s what insuring someone without medical underwriting feels like. Since the ACA prohibits underwriting, small insurers can’t effectively manage risk—so only huge insurers remain. And they don’t bother with SHOP.

Yes, You Can Still Claim the Credit

Even though SHOP is functionally gone, the IRS has offered transition relief every year the credit has existed. You can still use Form 8941 to claim the credit—even on amended returns.

What You’ll Need for Form 8941

• SHOP QHP documentation or proof of transitional relief
• Number of full-time and part-time employees, and total hours worked
• Average annual employee wages
• Employer premiums paid per employee
• K-1s or pass-through ownership info (if applicable)
• Cost of coverage for each employee
• Payroll tax liability (for tax-exempt orgs)

Heads-up: this isn’t the easiest credit to document, so some accountants may hesitate to pursue it. But if you're eligible, it can be worth the effort.