Adding 2% Shareholder Benefits to W-2s
This guide explains how to locate 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, which are then reflected on the shareholder’s W-2 for the tax year. Because of this, it’s important to process this pay run before the end of the year.
Why This Matters
For 2% (or more) shareholders of an S-Corp, certain fringe benefits are taxable. These include:
- Company-paid health insurance
- Employer HSA contributions for the shareholder
- Company-provided vehicles
Taxable amounts for these benefits must go through payroll to appear on the shareholder’s W-2 at year-end.
Timing of Benefit Processing
Even though these company-paid fringe benefits aren’t cash wages, the taxable portion must be processed as a pay run on or before December 31 of the same tax year.
After the new year, retroactive additions of 2% shareholder benefits to W-2s can only be done by submitting a support request for a tax adjustment.
Shareholder Taxable Fringe Benefits
- Company-paid health insurance and HSA contributions are subject only to Federal and State Income Tax (if applicable).
- Personal use of a company vehicle is subject to all employment taxes.
If you want taxes withheld from the shareholder-employee, run the shareholder pay items with a regular paycheck. If there are no remaining payrolls for the year, they can be processed in a special pay run.
Ways to Process These Benefits
You can handle shareholder insurance, HSA, and auto deductions in several ways depending on whether the annual amount is known and who is responsible for paying taxes:
- Known annual amounts: Deduct incrementally with each payroll. This avoids setting up Federal and State tax exemptions in Beyond.
- Unknown annual amounts: Deduct in a single payroll. This requires setting up tax exemptions first. The first step is deciding who will pay the taxes.
Tax Responsibility
Taxes paid by the company (counts as income):
If the company covers the shareholder’s tax portion, there’s no need to mark them as exempt. However, the shareholder must include these taxes as income.
Taxes paid by the shareholder (Fed/State tax exempt):
If the shareholder pays their own taxes, mark them exempt from Federal & State taxes for this payroll only.
Using the Legacy Pay Run?
The instructions below apply to the current version of Beyond’s legacy pay run. If you want to add benefits to a 2% shareholder’s W-2 using the legacy pay run, follow these steps:
Adding the Benefit Deductions
- Click the Payroll menu on the left.
- At the top of the payroll page, review your payroll settings and click Edit.
3 . Select Hold all employee deductions and click OK.
Note: You can adjust the payroll start and end dates in this window if needed.
- Exit payroll settings.
- Select which shareholder(s) should receive taxable benefits.
Tip: If fewer than half of the shareholders should be included, deselect all at the top to save time.
6.Click the pencil icon to edit Wages for the selected worker.
You can only edit wages for the selected workers; other employees’ pay items are not affected.
- If the shareholder pay items aren’t visible, click Add/Order Pay Rows to add, remove, or rearrange pay item rows for this worker.
- Click Add Row, search for “shareholder,” and click Add Row.
- Add as many rows as needed and drag to rearrange.
Tip: Adding pay rows does not automatically assign amounts – they remain empty until you enter a value. Use the Tab key to move between fields quickly.
Making the 2% Shareholder Exempt for Federal and State Withholdings
- In the expanded check details, click More.
- Select Exempt for Federal and/or State Withholding.
- If there are other 2% shareholders, repeat for each, or use the Next button to add them.
- Click Continue to Review.
Seeing a warning is normal during an off-cycle pay run because Beyond compares paycheck amounts with prior runs.
- When ready, click Submit Payroll.
This completes the pay run for adding 2% shareholder benefits. Remember to uncheck the Exempt fields for these shareholders on future payrolls so Federal and State taxes calculate correctly.
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.