It’s that time of year again when companies are preparing Forms W-2 for employees. This time can be confusing for employers on what fringe benefits to include and not include on an employee’s Form W-2. This is especially true for S corporations with more than a 2% S corporation shareholder-employee. The “2%” part means any S corp shareholder owning, directly or indirectly, more than 2% of the stock on any day during the tax year. There are special rules and requirements that need to be followed for these individuals. More than 2% S corp shareholder-employees are treated like partners for fringe benefit purposes. Because partners generally are considered to be self-employed rather than employees, tax-favored treatment (i.e., corporate deductibility and employee exclusion from income) for fringe benefits paid on behalf of 2% shareholders appears to be unavailable unless a specific statute treats a partner as an employee. These benefits are treated as compensation to the 2% shareholder and are generally subject to both federal/state withholding and employment taxes (FICA and FUTA) and, therefore, need to be reported on the Form W-2. Click on the link for a list that summarizes the fringe benefits for which 2% shareholders are treated as partners versus those where the 2% shareholders are treated as employees.