Toast Payroll: Record S-Corp Health Insurance Premiums

In this Article:

• S-Corp Basics
• How S-Corp Benefits Impact Payroll
• Record S-Corp Benefits
• Know When to Report S-Corp Earnings
• Additional Resources

S-Corp Basics

S-Corporations (typically shortened to S-Corp) are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The main benefit is that shareholders are not effectively taxed twice (once as a corporation and once on the income they receive as shareholders). If unsure of corporation status, please consult your accounting/legal staff. For more information, visit this IRS article.
 

Note: S-Corp owner health premiums are an item that you may need to add to payroll as wages to appear on Form W-2s. Taxable fringe benefits and group term life insurance premiums are some others. Consult with an attorney, CPA, or tax professional to make sure you are recording all you need to.

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How S-Corp Benefits Impact Payroll

If certain benefits (example: medical, dental, vision) are provided to certain shareholders by the company, the costs of those premiums must be recorded as income but are only taxable for federal and state income tax (FIT and SIT).

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Record S-Corp Benefits

There are two options here. Toast Payroll cannot advise which method you should choose, but can recommend consulting a CPA or tax professional if you need advice.

1. Use the Employee Earnings step of payroll to add an S-Corp non-cash earning to payroll. Toast Payroll will automatically calculate federal and state income tax for this earning. Check out the One Time Earnings section in this article to learn more about adding an earning to a payroll.
   1. If you need a new earning code, please fill out this form and submit it through the blue chat button in the lower-right corner of any Toast Payroll page. This earning may need to be tied to Form W-2 box 14.
2. You may record S-Corp on a payroll with cash earnings on your regular payroll or on a blank (off-cycle) payroll. 
   1. When S-Corp is recorded on a payroll with cash earnings, the shareholder's net pay does not increase. The tax withholding will be pulled from the cash earnings.
   2. When it is recorded on a blank off-cycle payroll, it will increase taxable wages, but taxes are not withheld on the health premium amounts. You might use this method if the shareholder does not want an increase in manual payroll taxes.
   3. Note: If the earning being recorded is large (ex: $20,000 in medical premiums), it may be in the shareholder's best interest to break it up over a few payrolls to lighten the tax burden.

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Know When to Report S-Corp Earnings

There are S-Corp benefits premiums that should be recorded in the same calendar year and before the tax filing deadline to appear on the Form W-2. If you are unsure of whether to report these or not, ask yourself the following questions:

1. Are you reporting this for your company?
2. Is your company an S-Corp?
3. Are there shareholders who are receiving benefits?
4. Did your CPA or tax professional advise what benefit premiums should be recorded and what boxes should increase on Form W2?
   1. Verify that it should increase boxes 1 and 16 (if applicable) and should be listed in box 14.

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Additional Resources

• IRS S-Corp Resource
• Earning Code Request Form (if you need an S-Corp earning in Toast Payroll)
• Toast Payroll: Set Up and Configure Off-Cycle Payrolls
• Toast Payroll: Get Started With the Year-End Checklist

This content is for informational purposes and is not intended as legal, tax, HR, or other professional advice. Please contact an attorney or other professional for advice.