Adjustments for Shareholder Payroll

If you are a more than two percent shareholder in an S corporation you need to consider the following adjustments to your W-2 before the end of the year.

Shareholder Health Insurance

Health insurance premiums paid for medical, dental and vision on behalf of a greater than two percent S corporation shareholder-employee must be included in taxable wages on the shareholder-employee’s Form W-2, subject to income tax withholding, in order to be deductible by the S corporation. These additional wages are not subject to social security, Medicare (FICA) or Unemployment (FUTA) taxes. The additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, but is not included in Boxes 3 and 5. An above-the-line deduction for premiums paid is subsequently taken on the shareholder’s individual tax return.

Personal Use of Company Vehicle

If you drive a vehicle owned by your company, the personal use portion is considered a taxable fringe benefit that must be included in wages on the shareholder-employee’s Form W-2, subject to income tax withholding, social security, Medicare, and FUTA. The employer may elect not to withhold income taxes when a written notice is given to the employees. We can provide you with the forms necessary to calculate the value of this fringe benefit, or we can perform the calculation for you.

If you would like more detail on either of the above adjustments, please don’t hesitate to contact us.