For 2% or more shareholders in an "S" election corporation, certain fringe benefits are taxable. These include company-paid health insurance, company HSA contributions on behalf of the shareholder, and company-provided automobiles.
The amounts paid by the company for these fringe benefits will need to be added to OnPay so that shareholder W-2s are accurate at the end of the year. OnPay makes this easy by providing pre-built pay types for Shareholder Insurance, Shareholder HSA, and Shareholder Auto.
How to process shareholder taxable fringe benefits through OnPay
For 2% shareholders, company-paid health insurance and HSA contributions are only subject to Federal and State Income Tax (where applicable). Personal use of a company car is subject to all employment taxes.
If you would like the taxes withheld from the shareholder-employee, please run the shareholder pay items with a regular paycheck. If there are no more regular payrolls for the year, the shareholder pay items can be run on a separate payroll.
If your company wants to cover the shareholder's share of taxes, you do not need to change shareholder-employees to exempt. If the shareholder will be responsible to pay the taxes owed, please mark them exempt from Federal & State taxes for this payroll only.
- Log in to OnPay and click Payroll in the left side menu. Select the shareholders who need the taxable benefits added.
- Click on the check date at the top of the screen and tick the box "Hold all employee deductions?". If needed, the period start and end dates for this payroll can be edited in this window as well. Click "Okay".
- Progress to the Enter Hours step.
- Click the expand icon under each shareholder-employee.
- Select the relevant pay item(s) (Shareholder Insurance, Shareholder HSA, Shareholder Auto) and click "+ Add Item".
- If you are opting for the shareholder to owe the taxes when they file their W-2: Click on the Withholding tab in the expanded section and checkmark exempt for Federal and State income tax.
- Close the expanded section and tick the shareholder pay items to be included in the pay run.
- Enter the amounts of Shareholder Insurance, Shareholder HSA, and/or Shareholder Auto in the Override column.
- Run the payroll with Shareholder Auto and Shareholder Insurance pay types only by progressing through Review Payroll > Approve Payroll and clicking the final “Approve Payroll” button.
Important: Once you have completed the payroll, go back to the Run Payroll screen. You will have to uncheck the "Exempt" withholding fields for these shareholder-employees to ensure that Federal and State Withholdings will calculate correctly on future payrolls.
You should always consult your accountant before adding these benefit amounts for shareholders. If you have any questions, please give our Client Experience team a call at 877-328-6505.