What are 2% shareholders
A 2% shareholder is anyone who owns directly or indirectly more than 2% of the company's stock at any time during the tax year.
What does this change for payroll?
Members of S-Corporations considered as ‘2% shareholders’ have certain fringe benefits (Medical, HSA, and Group-Term Life) that are handled differently from traditional employee benefits.
A ‘2% shareholder’ employees is not eligible for 125 cafeteria benefit plans (which would include items like health/vision/dental insurance), and these fringe benefits are not allowed to be taken out as pre-tax deductions. They are instead reported as income for the 2% shareholder.
Single-owner LLCs can also elect to be taxed as a 2% shareholder.
No cash movement is required as part of this process, as it is purely for reporting.
How to Determine Your 2% Shareholders:
How to Determine Your 2% Shareholders:
To identify 2% shareholders in Monograph Payroll:
Navigate to the Payroll Onboarding tab, and select Finish setting up payroll
https://showcase.monograph.com/payroll/onboardingUnder the Employee Setup tab, each employee will have their 2% shareholder status displayed.
How to Report 2% Shareholder Benefits and HSA:
How to Report 2% Shareholder Benefits and HSA:
If you have 2% Shareholders participating in externally managed Medical benefits and/or HSAs, please follow these steps.
Create an off-cycle payroll with a pay day that is before the end of the quarter/year (i.e. December 30).
Add an 'Additional Earning' and select '2% Shareholder Benefits' for applicable individual that has 2% shareholder status.
Enter the amount of benefits for the period on that earning item, which will look like the following earning entries:
Before submitting this payroll, double-check to ensure net wages and cash requirements are $0.00 and that the Taxes and Benefits tab is empty.
No cash movement is required as part of this process.
If you attempt to add 2% shareholder benefits to an individual that is not classified as a 2% shareholder in the Employee Onboarding tab, you will receive that will not allow you to proceed:
If you don't see the '2% shareholder benefits' option under additional earnings, please reach out to our Payroll Support team at [email protected]