I AM AN S-CORPORATION OWNER-EMPLOYEE, WHAT SHOULD BE REPORTED ON MY W-2?

Jobe Dupre, CPA

As an S-Corporation shareholder there are certain items that should be reported on your W-2 as compensation. These items are commonly either reported incorrectly or not reported at all. The good news for this year is that you still have time to call your payroll company and have these items correctly reported on the W-2. The following are two items that are often not reported correctly.

  • Medical insurance of a 2% or more shareholder-employee: Medical insurance paid by the corporation for 2% or more shareholders is considered compensation and must be reported on the shareholder-employees W-2. These items are not subject to Social Security, Medicare, and Unemployment taxes so they are only reported in box 1 of the W-2. The shareholder is picking these amounts up as income, but the IRS does allow an above the line deduction for the amount of the premiums on the shareholders personal return. If the premiums are not properly reported on the W-2 there is a chance that upon audit the IRS can disallow this deduction.
  • Personal use of business owned automobile: Personal use of most company owned vehicles is considered compensation and must be included on the W-2. The employee must track the personal miles. The value of these personal miles is reported as wages on his/her W-2. If, upon audit, an IRS agent determines that there was personal use of a company owned vehicle and that the personal use portion was not reported on the employee’s W-2, the agent can potentially disallow the personal amount of automobile expenses from the corporation’s tax return or add this amount as income on the employee’s 1040.

As mentioned above, these are two very common errors. The good news is they are not very difficult to correct and in doing so you will be compliant with existing tax law.

As always, please feel free to contact us or reply to this piece should you have any questions or concerns.

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