Reminder for S Corps: Report Health Insurance Premiums on a W-2 for 2% Shareholder-Employee

Article updated December 8, 2021.

With three weeks remaining in the year, we want to remind you of specific year-end payroll processes as it relates to reporting health insurance premiums on a W-2 for a 2% Shareholder-Employee. Before finalizing your year-end payroll, remember to include shareholder medical 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 returns and W-2’s.

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:

• 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 included in State Wages for NJ residents
• Premiums are NOT included in State or Local Wages for PA residents
• The premiums are NOT included 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 deducts on Line 16, Schedule 1 (Form 1040) as a self-employed health insurance deduction.

WM WISDOM:

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 4th quarter and year-end payroll returns and W-2s. 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 includible information still falls on the company itself.

Should you have questions about the above topic, or any other topics related to your personal or business situation, please contact us at any time.

Addition information regarding S Corporations may be found on the IRS website.

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