As a 2% S-Corp owner-employee, we recommend adding your health insurance to your wages if you haven't already. For S-Corp or LLC companies, the IRS requires that health insurance premiums paid by the company to employees with a greater than 2% ownership be reported as wages (not pre-tax benefits) and the cost is included on their W2s. For more information, review Notice 2008-1 from the IRS as well as Wage Compensation for S Corporation Officers.
Benefits obtained through Gusto
If you've purchased your health insurance through Gusto, you shouldn't need to add it as a separate benefit. Instead, Gusto will manage and calculate the company contribution and employee deduction automatically for enrolled employees.
Adding external benefits to your employee profile in Gusto
If you offer benefits outside of Gusto, follow these steps to set up benefits for 2% shareholder-employees:
- Sign in to your Gusto admin account
- Go to the People section and click Team members
- Click on the employee's name
- Under "Employment Details", make sure the employee is designated as a 2% Shareholder
- Under "Benefits", click Add Benefit
- Next to "Select a Benefit," select Create New Benefit from the dropdown menu
- Enter a "Benefit Name"
- Next to "Benefit Type", select Medical, Dental, or Vision
- Enter the "Company Contribution Per Pay Period" and "Employee Deduction Per Pay Period" that you've calculated. See Calculating the company contribution and employee deduction below for some tips on calculating this.
- Click Save
See Add and manage benefits in Gusto's Help Center for more on these steps.
Calculating the company contribution and employee deduction
It can be confusing to know what to enter for company contribution and employee deduction. The company contribution is the portion of the health insurance premium that the company will pay, while the employee deduction is the amount paid by the employee that can be deducted pre-tax.
You need to be careful to enter these values in terms of the pay schedule you've defined since Gusto is expecting you to enter the amounts per pay period. For example, if you're doing payroll every two weeks and your company is covering 25% of the cost of the health insurance premium which is $200 per month, then the company contribution per pay period would be $25 (25% of $200/month is $50/month, which is spread over two pay periods each month) and the employee deduction would be $75 each pay period.
Essentially, these figures depend upon what the company has agreed to pay, how often you run payroll, and the amount of your premium.