Annual Reminder for S-Corp Owners: Include Health Insurance Premiums Paid for 2% Shareholder-Employee on W-2

With the end of 2022 fast approaching, we would like to remind all S-Corporation owners to be sure to include health insurance premiums in W-2 Wages for any shareholder-employee who owns more than 2% of the company.

We too frequently find that shareholder medical insurance premiums have not been included in the shareholder-employee W-2 wages and it often requires the preparation of amended payroll tax returns and W-2’s.

ANNUAL REMINDER FOR S-CORP OWNERS:  INCLUDE HEALTH INSURANCE PREMIUMS PAID FOR 2% SHAREHOLDER-EMPLOYEE ON W-2

If your Company is an S-Corporation, the following guidelines should be followed to report on Form W-2 the cost of medical insurance premiums paid on behalf of > 2% shareholder-employees, their spouses and dependents:

• The health insurance premiums are additional wages reportable in Box 1 (Wages) of Form W-2 and are subject to Federal income tax withholding.

• The premiums are also additional wages reportable in Box 16 (State Wages) for some, BUT NOT ALL, states:

• Premiums ARE includable in State Wages for NJ residents
  • Premiums are NOT includable in State or Local Wages for PA residents if the health insurance plan is not discriminatory (i.e. – all employees are included)

• The premiums are NOT includable in Boxes 3 and 5 of Form W-2 and are not subject to Social Security or Medicare (FICA), or Unemployment (FUTA) taxes.

• The health insurance premiums paid by the S corporation are reported on Form W-2, Box 14.  There is no standard list of W-2 codes for Box 14, so employers can list any description they choose for 2% health premiums including SCORP, SEHLTH, INS, etc. This is the amount the shareholder reports on Schedule 1 (Form 1040) as a self-employed health insurance deduction.

Third-Party Payroll Provider

If your Company uses a third-party payroll provider, do not forget to report these premiums to the provider PRIOR TO your final payroll of the year. This will ensure proper inclusion of the premiums in wages for the fourth quarter and year-end payroll tax returns and W-2’s. Many third-party payroll providers will send email reminders or include deadline dates for reporting this information in the email signatures of their representatives, but the responsibility to provide the information still falls on the company itself.

Questions?

As always, if you have a questions, please contact us to discuss.

DISCLAIMER: The WM Daily Update, WM Wednesday Wisdom, Newsletters, COVID-19 Business Resources, COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.