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.