Medical Insurance for Shareholders (S corporations only)

An S Corporation that pays medical insurance premiums for the benefit of a greater-than 2% owner, may deduct the cost of those premiums, but only if the amounts are treated as compensation and included in the shareholder’s gross wages (reported on Form W-2). Such fringe benefits are subject to income tax and withholding, but are not subject to Federal Insurance Contributions Act (FICA) and unemployment taxes. To be exempt from FICA and unemployment taxes, the payments for medical and accident coverage must be made under a “plan” for either employees and their dependents generally, or for a class of employees.  To have a plan, the S Corporation must either pay the premiums directly, or reimburse the shareholder for premiums they paid. The amount of premiums paid on behalf of the shareholder must be reported as taxable wages.

Please make sure any medical premiums are added to taxable wages in a one-time amount in the year-end paycheck.

Personal Use of Company Vehicle

An employee’s personal use of a company car must be treated as compensation and included in gross wages, subject to income and payroll taxes. This rule applies to both employees and shareholders. The calculation of the amount to be included can be complex and we are here to assist you in the calculation. We will need the business miles and total miles driven by the employee, as well as the vehicle they are using.  Keep in mind that business mileage does not include miles driven commuting to and from work.

Please make sure the personal use of company vehicles are added to taxable wages in a one-time amount in the year-end paycheck.