S Corporation
Payroll
|
8 min. read

How do I report benefits on my W-2 as an S corp owner?

S corporation owners mistakenly don’t report certain benefits on their tax returns. Benefits you receive like health insurance and company vehicles are considered taxable income — and need to be reported if you’re an S corp owner.

There are a lot of benefits to being an S corporation owner. But you also have a lot of extra rules to follow compared to other types of business owners.

One of those is reporting certain benefits as taxable income. Many S corp owners often omit benefits like their health insurance premiums and personal use of company vehicles from their W-2 because they don’t think it counts as income. But according to the IRS, that’s taxable income. (You could still deduct health insurance premiums when you file your return, but only if you report it the right way on your W-2.)

Those types of benefits — ones that are monetary and aren’t included in your salary or distributions — are called fringe benefits. Most fringe benefits need to be recorded on your W-2. If they’re not reported correctly, you could be penalized or audited by the IRS.

 

Who needs to report benefits in S corps?

There are two main groups of people that need to report their benefits on their W-2:

  • Greater than 2 percent owners of S corps
  • Employees who are family members of the greater than 2 percent owner

You don’t need to worry about reporting benefits if:

  • You own less than 2 percent of an S corp
  • You’re an S corp employee, but not a family member to a greater than 2 percent owner

What are fringe benefits?

Fringe benefits are the financial benefits you receive from work that aren’t part of your salary or distributions. So things like the use of health insurance, personal use of owned or leased company vehicles and company cell phones are all fringe benefits.

Some fringe benefits are taxable, and some aren’t. The IRS says to assume that any fringe benefit you receive is taxable, unless the law specifically excludes it.

Business owners can receive fringe benefits — but so can employees. However, fringe benefits for employees and independent contractors are handled differently than owners in S corps.

Which benefits do I need to report on my W-2?

The IRS lays out some exceptions, but you should assume that all your fringe benefits should be reported.

This chart shows you how to treat some of the common fringe benefits you might receive as a greater than 2 percent S corp owner:

Fringe benefit example Subject to income tax withholding? Subject to payroll taxes (Social Security and Medicare taxes)?
Medical insurance premiums Yes No
Personal use of company-provided vehicles or other property Yes Yes
Anything so minimal that keeping track of it would be impractical (like minimal personal use of a company-provided cell phone or using a conference room for a PTA meeting) No No

 

There are several other fringe benefits, like health savings accounts (HSAs), dependent care assistance, retirement planning services and more. You can find the full list at the IRS’s tax guide to fringe benefits for employers.

The two most substantial fringe benefits out of all of them are health insurance premiums and the personal use of company vehicles. And both of those must be reported on your W-2 and subject to self-employment taxes if you’re a greater than 2% S corp owner.

How do I report benefits?

You need to make sure that fringe benefits are included on your W-2, along with your salary from reasonable compensation.

💰 Learn more about reasonable compensation for S corp owners.

 

You can make sure it’s reported correctly on your W-2 via your payroll software. (We recommend Gusto as the best small business payroll software.)

Below are instructions for setting up fringe benefits on some of the most popular payroll software. If your payroll provider isn’t here, contact yours directly if you’re not sure how to set up your reporting correctly.

Gusto fringe benefits setup instructions

If you use Gusto, you should follow these instructions for reporting fringe benefits on your W-2 as a greater than 2 percent S corp owner:

gusto s corp medical insurance premiums w2

Square fringe benefits setup instructions

If you’re registered as an S corp in Square, they will reach out to you via email asking you for the amounts you received in health insurance premiums. If you didn’t receive or lost their email, you can contact them on their website.

square payroll s corp medical insurance premiums w2

QuickBooks Payroll fringe benefits setup instructions

QuickBooks Payroll (not to be confused with QuickBooks Online or QuickBooks Desktop) has detailed instructions for entering and adjusting fringe benefits. Below is how you can set up fringe benefits, which is the first step. Visit their website to see the specifics on entering and adjusting the values of those fringe benefits, like health insurance premiums.

quickbooks payroll medical insurance premiums s corp w2

What happens if I don’t report fringe benefits correctly?

If you’re not reporting your health insurance premiums or any other fringe benefit correctly, you can lose money and get in trouble with the IRS.

In the case of health insurance premiums, you can lose the deductions for them if it’s not on your W-2. That could be thousands of dollars that you miss out on for simply not taking a few minutes to set something up in your payroll software.

The IRS may audit you on top of that. An audit for your fringe benefits could give the IRS reason to search for any other mistakes you’ve made. They might decide to see if you’re paying yourself a reasonable compensation — which is something many S corp owners get wrong by making their salaries too small or not doing it at all.

The bottom line

S corp owners have to follow a lot of special rules compared to other types of business owners. One of those is reporting fringe benefits as taxable income.

These reporting rules only apply to S corp owners that own more than 2 percent of the business and any family members they have as employees. You have to make sure that any income you receive via fringe benefits is included on your W-2.

Not sure if you’re reporting your benefits right — or filing your S corp return correctly at all? Schedule a free call with a DiMercurio Advisors team member to get in touch with an expert you can trust to get you through tax season stress-free.

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