Employee Tax Types Using BambooHR Payroll

What employee tax types are available when using BambooHR Payroll?

Purpose: This help guide will explain the different employee tax types available for customers using BambooHR Payroll.

Table of Contents

Tax Types

If you are using BambooHR Payroll, you will need to assign your employees a tax type within the Employment Status table on the Job tab. This is how our system determines what tax documents to send to your employees at the end of the year. There are five employee tax types to choose from. We have outlined these tax types below.

W-2

The W-2 is the most common employee tax type. Employees with this tax type may be subject to payroll taxes and will receive a W-2 to file at the end of the year. Once the W-2 type is selected, make sure that the Taxes section on the employee's Pay Info tab is filled out and matches the elections they've made on their Form W-4.

S Corp-2% shareholder

S Corporations (different from C Corporations) are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. This allows S Corporations to avoid double taxation on corporate income. If an employee owns more than 2% of the company of an S-Corp, they are considered a 2% Shareholder and would need to be set up as such in BambooHR. 

For specifications on S Corporations, please refer to the IRS. If you are unsure if an employee is a 2% Shareholder or if your company is considered an S Corporation, please contact your company’s legal counsel or accounting agency.

Post-tax benefits for 2% shareholders

Under this tax type, the employee will not be eligible for any pre-tax benefits from deductions, such as medical, dental, vision, accident, and HSA. If the employee is set up as an S Corp - 2% Shareholder tax type under their Job tab > Employment Status table in BambooHR, then these pre-tax benefits will be recorded automatically as post-tax within payroll.

The system calculates pre-tax as post-tax for federal taxes. However, incorrect calculations for 2% Shareholders could occur for state and local taxes. We recommend setting up post-tax plans and enrolling 2% Shareholders in these plans. This avoids incorrect calculations of state and local taxes.

Reporting

S Corp - 2% shareholders will receive a W-2 at the end of the year. Make sure that their Taxes section on the Pay Info tab is filled out and matches the elections they have made on Form W-4. If the employee has post-tax health benefits, these payments will be included in wages for income tax withholding purposes only, and they are NOT subject to Social Security, Medicare, or FUTA taxation. These payments will appear in Box 1 and Box 14 on the W-2. Employer health costs taxable to the Shareholder may be reported using the pay type “Nonpayable Taxable Benefit 2%”.

H-1B Visa

You will use this option if you have employees who are working for your company on a temporary (non-immigrant) visa. Resident aliens are taxed in the same manner as U.S. citizens on their worldwide income, and nonresident aliens (with certain narrowly defined exceptions) are taxed only on income that is derived from sources within the United States and/or income that is effectively connected with a U.S. trade or business.

For more information, please refer to the IRS. 

Expatriate

The Expatriate tax type is for U.S. citizens and resident aliens who live and work outside the U.S. In general, wages earned by U.S. citizens and resident aliens working in a foreign country are subject to federal income tax withholding.

1099

1099 is another common tax type if you have hired contractors to work for your company. This tax type will automatically populate for anyone with an employment status labeled as “Contractor” under the Employment Status table in BambooHR. For 1099s, taxes will not get withheld from their paychecks. If you navigate to the Taxes section on the employee’s Pay Info tab, the Federal, State, and State Unemployment sections will not appear. If you request BambooHR Payroll to produce 1099s for the year, the recipients will be able to see their 1099 under this section at the end of the year. 

Please note that if you are paying your 1099 employees through BambooHR Payroll and would like us to file the 1099s for your contractors, you must set that up in Company Tax Settings within Settings > Payroll > Taxes. BambooHR does not automatically file 1099s at the end of the year as they do for W-2s. All amounts recorded in payroll will be reportable on the 1099 form.

Setting up contractors in BambooHR under the Personal tab

It is important to understand that you will need to add contractors getting paid through BambooHR and fill in all of the required fields under their Personal tab, just like you would for a regular employee. Birthdate, Marital Status, and Gender are all required fields for payroll as well. You can use default data for these fields. You will then enter the contractor’s SSN on the Personal tab.

*Please note our SSN field has authentications with valid SSNs only.

Setting up contractors in BambooHR under the Job tab

As mentioned above, make sure that you have all contractors set as Contractor in the Employment Status table. When setting up compensation, there are a few options to choose from.

  • If you are paying them a consistent rate, add this rate as you would for a regular employee. If you are paying them hourly, you can add the hours on the Edit page when running payroll or by using BambooHR® Time Tracking. 
  • If the rate varies and you wish to pay them in one lump sum, you can set them up with a pay type named “Commission Only” and then enter the total amount as extra pay on the Edit page when running payroll. 
  • You also have the option to set up their compensation with a $0.00 per hour rate and then add the total amount as extra pay when running payroll.