There are several issues that must be addressed for year-end payroll reporting. Among the most common are health insurance premiums paid to S-corp shareholders or their families, personal use of company provided automobiles, and company-provided life insurance. Whether you process your own payroll, use an outside processor or we process your payroll, you must report these fringe benefits properly.
Health Insurance Premiums Paid to 2% Shareholders
The IRS requires health insurance premiums paid by subchapter S corporations for employees owning 2% of the corporation and/or their family members, to be treated as additional wages to the employee. These wages are subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA.
NOTE: Due to the changing nature of Health Insurance under the Aforrdable Care Act, please contact your tax advisor for more information on this issue.
Reasonable Compensation for S-Corporation Shareholders
The IRS is increasingly auditing tax returns of S-corporations where the owners have taken less that a reasonable salary. If you are an owner of a profitable S-corporation and have not taken salary or have taken a very low salary that could be deemed as not reasonable, you are at risk of an IRS audit in which they will recharacterize distributions as salary.
Personal Use of Auto
When providing an employee (including shareholder/employees in corporations) the use of a company-provided vehicle, a value representing the personal portion of usage of the vehicle must be included in the employee’s W-2 income.
The value computed must be included in the employee’s W-2 as wages and is taxable for federal income tax, FICA, Medicare and FUTA. Although FICA and Medicare withholding is required, federal withholding is not required if notice was provided to the employee of the Company’s decision not to withhold by January 31st.
Group Term Life Insurance
The value of company-provided group term life insurance in excess of $50,000 must be included in the employee’s income and is subject only to FICA and Medicare withholding. For 2% shareholders, the entire amount of premiums paid must be included as income on the shareholder’s W-2, subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA. Please contact the office if this applies to you and we prepare your W-2 forms.