S-Corp Year-End Payroll Checklist

Reasonable compensation

• Confirm year-to-date W-2 wages reflect reasonable compensation for the work you did
• If you're light, run an extra payroll (and remit payroll taxes) before year-end
• Document how you arrived at the number — comparable salary data beats a guess
• Distributions on top of reasonable comp are fine — the IRS attacks the inverse

Owner health insurance on the W-2

Health, dental, and long-term care premiums paid by the S-Corp for a >2% shareholder must be added to Box 1 (and Box 14) wages — not subject to FICA. This step is what unlocks the self-employed health insurance deduction on your personal return.

• Tell your payroll provider before the final run of the year
• Include all premiums paid by the S-Corp, including for spouse and dependents
• Confirm it appears on the W-2 — don't wait until April to discover it was missed

Accountable plan reimbursements

• Reimburse owner for home office, cell phone, internet, and mileage under a written accountable plan
• Owner submits receipts/mileage log; S-Corp reimburses and deducts as a business expense
• Avoid 'home office deduction' on the 1040 (S-Corp owners don't qualify directly)
• Process any outstanding reimbursements before 12/31

Retirement contributions

• Solo 401(k) employee deferrals must come out of W-2 wages paid by 12/31
• Employer profit sharing calculated on W-2, not distributions — fund by extended due date
• If you have non-owner employees, watch coverage and discrimination rules

Reconcile before W-2s go out

• Tie 941 totals to year-to-date payroll
• Confirm state unemployment wages and rates are correct
• Verify owner SSN, address, and benefit amounts on the draft W-2
• Issue 1099-NECs to contractors paid $600+ by 1/31