Shareholder benefits are taxed differently from regular employee benefits, and GoCo automates the proper handling of post-tax contributions and imputed income to ensure compliance. Continue reading to learn more!
Shareholder Benefits and Tax Treatment
When setting up benefits for company shareholders, it’s important to note that shareholder benefits cannot be taken pre-tax and are labeled post-tax in GoCo.
Here’s how GoCo handles this process to ensure proper tax treatment:
1. Setting Up Shareholder Benefits
- Benefits are built as normal, including policy premiums.
- Most owners have their company cover 100% of their benefits, and if that’s the case, they should be placed in their own company class to prevent deductions from coming out of their paycheck. Reach out to support@goco.io to get this set up.
2. Marking Owners as Shareholders
- Owners should be designated as shareholders in GoCo.
- When marked as shareholders, any benefit policies configured will be converted from pre-tax to post-tax. Reach out to support@goco.io to mark owners as shareholders.
3. How Employer Contributions Are Handled
- Since the company covers the full cost of benefits for shareholders, these contributions are considered post-tax employer contributions.
- These do not increase the shareholder’s paycheck, but they do increase taxable income due to being treated as imputed pay.
- This means shareholders will pay more in taxes, even though they don’t see an increase in take-home pay.
Life Insurance Premiums Above $50K
This rule applies to all employees, not just shareholders. The IRS requires that:
- Any employer-sponsored group life insurance coverage above $50,000 is subject to taxation through imputed pay.
- The taxable amount is calculated based on IRS Publication 15-B, which considers the employee’s age and benefit amount.
How GoCo Helps
GoCo automatically manages these tax implications:
✅ Group Life Insurance: Imputed pay for employer-sponsored life insurance over $50K is automatically calculated.
✅ Shareholder Contributions: Employer-sponsored benefits for shareholders are flagged as imputed pay in the system.
✅ Embedded Payroll: All tax treatments and imputed pay calculations are handled automatically.
✅ Payroll Sync: Clients using payroll sync can choose which data to sync and when.
By leveraging GoCo’s automated processes, businesses can ensure compliance with IRS regulations while simplifying benefit administration for shareholders and employees alike.
If you have additional questions please contact our support team! 💚
Disclaimer:
This article is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult a lawyer or HR expert for specific guidance.