Add S-Corp health insurance for 2% shareholders in payroll

In 7shifts Payroll, S-Corporation health insurance premiums for shareholders who own more than 2% of the company must be set up as a Custom Earning Code - not as a standard benefit deduction. The IRS requires these premiums to be treated as taxable wages and reported in Box 14 of the employee's W-2, so 7shifts uses a dedicated earning code to apply the correct tax treatment without adding the amount to the employee's net pay.

Set up the 2% Shareholder Benefits earning code

Before adding the earning to a payroll run, you'll need to create the custom earning code in your business settings. You only need to do this once.

1. Go to Payroll > Business Settings.
2. Select Add Custom Earning.
3. Choose 2% Shareholder Benefits.
4. Save your settings.

Add the earning to a payroll run

Once the earning code is set up, add it manually to each payroll that includes a 2% shareholder. This applies to both regular and off-cycle payroll runs.

1. Navigate to the Review Hours & Earnings screen.
2. Locate the 2% shareholder employee.
3. Find the Custom Earnings section under their name.
4. Click + Add.
5. Select 2% Shareholder Benefits and enter the dollar amount of the insurance premium.
6. Click Update Earnings.