Adding 2% Shareholder Benefits to W-2s (Legacy Pay Run)
This guide explains where to find pay types for shareholder benefit contributions – Shareholder Insurance, Shareholder HSA, and Shareholder Auto – and how to add them to a pay run. These pay types calculate the taxable amounts for each employee during payroll and ensure they appear on the shareholder’s W-2 for the tax year. For this reason, it’s important to complete this pay run before year-end.
Why This Matters
For 2% (or more) shareholders of an S-Corp, certain fringe benefits are taxable. This includes:
- Company-paid health insurance
- Employer HSA contributions for the shareholder
- Company-provided vehicles
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These taxable amounts must go through payroll so they are reflected on the shareholder’s W-2 at the end of the year.
Timing of Benefit Processing
Even though company-paid fringe benefits are not cash wages, the taxable portion must be processed through payroll on or before December 31 of the tax year.
After the new year: If you need to add 2% shareholder benefits retroactively, this can only be done by submitting a support request for a tax adjustment.
Shareholder Taxable Fringe Benefits
For 2% shareholders:
- Health insurance and HSA contributions are subject to Federal and, where applicable, State Income Tax.
- Personal use of a company car is subject to all employment taxes.
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If you want taxes withheld from the shareholder-employee, you’ll need to run the shareholder pay items with a regular paycheck. If there are no more regular payrolls for the year, these items can be processed in a special pay run.
Running These Benefits
You can run Shareholder Insurance, HSA, and Auto benefits in different ways depending on whether you know the annual amount and who will pay the taxes:
- If the annual amount is known: Deduct the benefits incrementally with each payroll. This avoids setting up Federal and State tax exemptions in Beyond.
- If the annual amount is unknown: Run the deductions in a single payroll. You’ll first need to set up tax exemptions. The first step is deciding who pays the taxes.
Tax Responsibility
Taxes paid by the company:
If the company covers the shareholder’s taxes, you don’t need to mark the shareholder as exempt. However, the employee must include these taxes as income.
Taxes paid by the shareholder:
If the shareholder is responsible for the taxes, mark them exempt from Federal & State taxes for this payroll only.
Using the Improved Pay Run?
Beyond has upgraded the pay run experience, making it simpler for all clients. The instructions below are for the Classic Pay Run. If you want to use the improved pay run to add benefits to a 2% shareholder’s W-2, follow the separate guidance provided in Beyond.
Classic Pay Run Instructions
Adding Benefit Deductions in Payroll:
- Go to the Payroll menu on the left.
- Select the shareholder(s) to receive taxable benefits.
- At the top of the payroll page, check your current payroll settings and edit if needed.
- Enable “Hold all employee deductions?” and click OK.
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Note: You can also adjust the payroll start and end dates here if necessary.
- Continue to Enter Hours.
- Expand each shareholder-employee record.
- Search for Shareholder Insurance, Shareholder HSA, or Shareholder Auto, then click + Add Item.
- These pay items will now be available for future payrolls. To include them in this pay run, check each item and enter the amount in the Override column.
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Making Shareholders Exempt for Federal and State Withholdings:
- In the expanded check details, go to Withholding.
- Select Exempt for Federal and/or State Withholding.
- Click Review Payroll.
- You may see a warning — this is normal for off-cycle pay runs.
- When ready, click Approve Payroll.
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Important: After completing this pay run, uncheck the Exempt withholding fields for these shareholder-employees so Federal and State taxes calculate correctly on future payrolls.
Resetting Payroll Settings for Regular Pay Runs
- Go back to Run Payroll.
- Click the pay run settings again.
- Deselect “Hold all employee deductions?”
- Select the same shareholder-employees and click Enter Hours.
- Return to Withholding and deselect Exempt for Federal and/or State Withholding for each employee.
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Your payroll is now set up for regular runs.
Need Help?
If you still have any questions, please don’t hesitate to reach out. Our team will be happy to provide answers and assist you in any way we can.