More-Than-2% S Corporation Shareholder

Definition

A shareholder who owns more than 2% of an S corporation's stock at any point during the tax year, a threshold that triggers specific tax treatment distinct from other employees. Such shareholders are treated similarly to partners in a partnership for purposes of certain fringe benefits, meaning employer-paid health insurance premiums must be included in their W-2 wages rather than excluded. This classification has significant implications for payroll setup, benefits reporting, and deduction eligibility.