What is the "improved pay run"?
We’ve introduced a new pay run experience that’s more intuitive and responsive than ever before, and because it’s built on the same payroll engine you already depend on with OnPay, you won’t sacrifice any of the tools you rely on. In fact, we’ve even added on-the-fly cost details that account for every penny as you go.
For 2% (or more) shareholders of an "S" election corporation (S-Corp), certain fringe benefits are taxable. These include company-paid health insurance, company HSA contributions on behalf of the shareholder, and company-provided vehicles.
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.
What we'll cover
- Shareholder taxable fringe benefits
- Ways to run these benefits
- Shareholder taxes paid by the company
- Shareholder taxes paid by the shareholder
- Adding the benefit deductions (improved pay run)
- Making the 2% shareholder exempt for Federal and State withholdings
Shareholder taxable fringe benefits
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, you'll need to 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 in a special pay run.
Ways to run these benefits
You can run the shareholder insurance, HSA, and auto benefit deductions in a few ways, depending on whether or not you know what the annual amount will be, as well as who is paying the taxes. Tax responsibility can fall on either the shareholder, or the company (we'll cover this next).
If you know what the annual amounts are going to be, you can report the deductions incrementally with each payroll you run. This method avoids having to set up Federal and State tax exemptions in OnPay.
However, if you do not know the exact amount, you will need to run these deductions all in a single payroll. To do that, you will first need to set up tax exemptions (we'll cover this later). But the first step is deciding who pays these taxes.
Shareholder taxes paid by the company (taxes paid are income)
If your company wants to cover the shareholder's share of taxes, you do not need to change shareholder-employees to exempt. However, this means that the employee would also have to claim the taxes paid by the employer as income.
Shareholder taxes paid by the shareholder (Fed/State tax exempt)
If the shareholder will be responsible to pay the taxes owed, you will need to mark them exempt from Federal & State taxes for this payroll only.
Using the classic pay run?
We've released an improved pay run experience that's easier than ever before. The following instructions are for our improved, three part pay run. If you need to add benefits to a 2% shareholder's Form W-2 using the classic pay run, we'll show you how! Just choose whether you'd like to:
Adding the benefit deductions (improved pay run)
Click the Payroll menu on the left to get started.
At the top of the payroll page, you find your current payroll settings. Click to edit.
Select Hold all employee deductions.
Note: If needed, the period start and end dates for this payroll can be edited in this window as well.
Exit payroll settings.
Select which shareholder(s) should have the taxable benefits added.
Click the pencil to edit "Wages" for the selected worker.*
If you don't see the shareholder pay item(s) you need, click Add/Order Pay Rows to add, remove, and rearrange pay item rows for this worker.
Click Add Row.
Search "shareholder" to find these pay items, and click Add Row.
Add as many rows as you need for this worker. Drag rows to rearrange them. Adding pay rows does not automatically include pay amounts in this or any run, so it's okay for workers to have pay rows that aren't always used.
The amounts added to pay rows only apply to the current pay run. Non-recurring pay rows are always empty until an amount is entered.
Making the 2% shareholder exempt for Federal and State withholdings
In the expanded check details, click More. Select "Exempt for Federal and/or State Withholding".
If there are no other 2% shareholders who need these benefits added to their W-2, click Continue To Review. Otherwise you can use the Next button in the upper right (or ALT + Left Arrow on your keyboard) to add these rows and amounts to other 2% shareholders.
When you're ready, click Submit Payroll.
Always consult your accountant before adding these benefit amounts for shareholders. If you have any questions, give us a call at 877-328-6505, or email us at firstname.lastname@example.org.