How employees with 2% Shareholder in S-Corp taxed in PayWow?
Last modified 6/18/2020 8:02:46 AM EST | Added by Paywow Team

Applicable To
Complete Payroll Contractor Pay Employees Contractors

According to the IRS mandate, companies operating as S-Corp or the ones operating as either C-Corp or LLC but taxed as S-Corp are required to pay taxes on premiums paid to 2% shareholder-employees for employer-sponsored benefits. Hence, the payroll computation in PayWow will slightly differ for employees holding a 2% or greater share.

Refer add employees to know how to add an employee with 2% Shareholder.

Let’s take a scenario with Medical Insurance offered to a 2% shareholder with both Employer Contribution & Employee Deductions. Let’s presume that the employee holds 5% stock in S-Corp. The Gross Pay is $1000, employer contribution toward medical insurance premium is $300, and employee deduction on the premium is $200. Since the employer’s contribution stands taxable, the taxable income for this employee would be $1300. 

The other tax components namely Social Security tax and Medicare tax, FUTA and SUTA will be computed from the 2% shareholder’s gross pay. Employee contribution towards premiums will not be considered.

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