BHT&D Certified Public Accountants Blog

Special Wage And Benefit Reporting For 2%+ Shareholders Of S-Corporations.

Posted by Lori Shepard on Mon, Dec 17, 2018 @ 07:00 AM

S-Corp Shareholder Fringe Benefits Tax Treatment

2% or more shareholders of an S-corporation (and family members) are not treated as an employee when it comes to most benefits.  Please see the table below for benefits that are taxable and for benefits that are tax-free to a 2% or more shareholder (and family members) of an S-corporation:

Benefits paid for a 2% or more shareholder (and family members):
Taxable Compensation   Tax-free Fringe Benefit
Premiums for accident and health insurance   Qualified educatioinal assistance program
Group term life insurance   Qualified dependent care assistance program
Disability insurance   No-additiional-cost services
Medical reimbursement plans   Qualified employee discounts
Meals or lodging for the convenience of the employer   Working condition fringe benefits
Cafeteria plan   De minimis fringe benefits
Qualified transportation fringes   On-premises athletic facilities
Qualified employee achievement award   Qualified retirement planning services
Qualified adoption assistance program    
Health savings accounts    


Most of the fringe benefits that are taxable to the 2% or more shareholder (and family members) must be “grossed-up” as though they were actual cash payments, with the following exceptions: 

  • The accident and health insurances are not subject to social security, medicare, Michigan and Federal unemployment taxes. It is only added to gross pay on the W-2 in the following boxes (The cost of the insurance should also be noted in box 14.):
    • 1 – Wages, tips, other compensation
    • 16 - State wages, tips, etc.
    • 18 – Local wages, tips, etc.
  • Employer contributions to the health savings account of a 2% or more shareholder (and family members) are treated as distributions. 
  • Group term life insurance payments must be “grossed up”, but are not subject to Federal unemployment tax. There is a de minimis benefit for group-term life insurance payable on the death of an employee’s spouse or dependent if the face amount isn’t more than $2,000.

If you have any questions on how this  impacts you or your business, please feel free to contact one of our CPAs at (616) 642-9467 or request a complimentary accounting consultation.

By: Lori Shepard, CPA

Photograph:  Rodrigo Roveri 

Tags: Business Tax, Taxable Benefits