Three things have to be right on your last 2026 payroll run: the salary you’ve actually paid yourself, the health insurance premiums that belong in Box 1 of your W-2, and the local rate coming out of your check. Get them right in December and your corporate return, your W-2, and your 1040 all agree. Get them wrong and you’re filing a corrected W-2 in February.

S corp owner payroll year end in Maryland has a wrinkle owners in most states don’t deal with. Your local income tax follows the county you live in, not where your shop sits, and the county of residence that sets the local withholding rate is the county submitted on Form MW507. Live in Hagerstown and run your business in Frederick, or the other way around, and the number changes.

We’re a bookkeeping and tax shop in Hagerstown with 26 years of tax prep behind us, and every January we see the same two fixes: a shareholder salary that never got trued up, and health premiums that never made it onto the W-2.

Pay the rest of your salary before December 31

Wages count in the year they’re paid, not the year you decided on them. If you planned on $66,000 of salary and you’ve paid $55,000 through November, December is your last chance to run the other $11,000 through payroll.

Don’t fix a thin salary with a December distribution instead. In Maryland that’s a bad idea for a specific reason: under state unemployment rules, all remuneration paid to corporate officers for services counts as wages, including for subchapter S corporations, and wages include draws, profit distributions, and dividends paid to officers as pay for services. Covered employment in Maryland includes paid corporate officers who are employees of the corporation, close and S corps included.

Our position: run a modest true-up in December, not a giant one-time December paycheck. A single December-only salary is the pattern that draws questions, and it can push you into a deposit schedule you weren’t ready for.

Put your health insurance premiums on your W-2

If you own more than 2% of the S corp and the company pays or reimburses your health insurance, those premiums are compensation. They go in Box 1 of your W-2, they’re left out of Boxes 3 and 5 so no Social Security or Medicare tax applies, the corporation deducts them as wages, and you then claim the self-employed health insurance deduction on your personal return.

Skip the W-2 step and you lose that personal deduction, so get the amount added every year.

Here’s a 2026 example for a Hagerstown contractor who is the only employee of her S corp. The salary and premium amounts are made up to show the math.

W-2 item (2026 example)AmountWhy
Cash salary paid Jan to Dec$66,000$55,000 through November plus an $11,000 December true-up
Health premiums paid by the company$14,400$1,200 a month, added in the December run
Box 1 wages$80,400Salary plus premiums
Box 3 and Box 5 wages$66,000Premiums excluded, and well under the $184,500 Social Security cap
Employee FICA at 7.65%$5,0497.65% of $66,000
Employer FICA at 7.65%$5,049Company match
FICA avoided on the premiums$2,203.2015.3% of $14,400, both halves combined

For 2026 the Social Security wage base is $184,500 and the Medicare rate is 1.45% each for employee and employer, unchanged from 2025. Most owner salaries around here never reach that cap, so plan on 7.65% on every dollar of cash wages.

One practical note: pay the premiums out of the business account before December 31 rather than reimbursing yourself in January. It keeps the 2026 amount clean.

Check the Washington County rate on your MW507

For the 2026 tax year, Washington County’s local income tax rate is 2.95%, while Frederick County uses a graduated set of rates of 2.25%, 2.75%, 2.96%, and 3.20%. Frederick’s brackets for married filing jointly and head of household run 2.25% on the first $25,000, 2.75% from $25,001 to $100,000, 2.96% from $100,001 to $250,000, and 3.20% above that.

So two owners with identical pay can owe different local tax. On $70,000 of Maryland net taxable income, Washington County’s 2.95% is $2,065. A married Frederick County couple in the 2.75% band is at $1,925. That’s a $140 gap on the same salary, and it’s the kind of thing that shows up as a surprise balance due if your MW507 still shows an old address.

Employees who don’t submit a withholding certificate get defaulted to the highest local rate, which is another reason to look at the form before the last run. If you moved this year, update the MW507 now and have your December check withhold at the right county rate. If you have workers crossing the line from Pennsylvania or West Virginia, that’s a separate set of rules, and our post on Maryland payroll reciprocity covers it.

Retirement deferrals have to come out of a 2026 paycheck

Your employee 401(k) deferral is payroll. It has to be withheld from a paycheck dated on or before December 31. For 2026 the employee deferral limit is $24,500, with an $8,000 catch-up at age 50 and up and $11,250 for ages 60 to 63. The company contribution usually has more time, generally until the business return is due, but the deferral does not.

New this year, and it catches higher-paid owners: starting January 1, 2026, participants age 50 or older whose prior-year FICA wages from the plan sponsor topped $150,000 must make catch-up contributions on a Roth basis, and for 2026 the figure to check is the 2025 wages in Box 3 of your W-2.

Your December and January calendar

  • Early December: confirm your 2026 salary target, the total premiums the company paid, and any 401(k) deferral still to withhold.
  • December 31: last day a paycheck can count for 2026.
  • January 15, 2027: fourth quarter personal estimated payments, federal and Maryland, if you make them.
  • January 29, 2027 (Friday): get the Maryland MW508 reconciliation, your state W-2 copies, and the Q4 unemployment report in BEACON done. Forms W-2 and MW508 are due January 31, and the Maryland unemployment contribution report for the quarter ending December 31 is also due January 31. January 31, 2027 is a Sunday, so don’t leave it to the weekend.
  • February 1, 2027: the Q4 Form 941 is due, because January 31, 2027 falls on a Sunday and the deadline moves to Monday. Form 940 and W-2s land on the same date.

Two more Maryland items while you’re in there. State unemployment tax applies only to the first $8,500 each employee earns in a calendar year, so your own wages almost certainly maxed that out by spring. And December is the month to tell yourself about paid leave: FAMLI payroll deductions and employer contributions begin January 1, 2027, and employers who plan to withhold employee contributions should give written notice in December 2026, at least one pay period before withholding starts.

Maryland set the initial rate at 0.9% of covered wages up to the Social Security wage cap, split evenly between employer and employee, and employers with 14 or fewer employees aren’t required to pay the employer share, though their employees still contribute. On a $66,000 salary, the employee half at 0.45% is about $297 for the year.

When none of this applies to you

If your LLC never made the S election, stop here. Owner draws from a single-member LLC taxed as a sole proprietorship aren’t payroll, and running a December “paycheck” to yourself doesn’t change your tax.

If your health coverage comes through your spouse’s employer and the company never paid a premium, there’s nothing to add to Box 1. If you own 2% or less of the S corp, the shareholder rules in this post aren’t yours.

And if the S corp lost money in 2026, a December true-up usually isn’t the move. Paying yourself more wages when there’s no profit to cover them just moves cash and adds payroll tax. Call first.

Frequently asked questions

What local income tax rate applies to a Hagerstown S corp owner in 2026?
Washington County’s 2026 local rate is 2.95%. It follows where you live, not where the business operates, so a Frederick County resident uses Frederick’s graduated rates instead.

Are my S corp health insurance premiums subject to Social Security and Medicare tax?
No, when the rules are met. The premiums go in Box 1 and are excluded from Boxes 3 and 5, so no FICA applies, and you claim the self-employed health insurance deduction personally.

Can I take a December distribution instead of running payroll?
You can take a distribution, but it doesn’t replace a reasonable salary. Maryland unemployment rules treat distributions paid to an officer for services rendered as wages.

When are my 2026 W-2s and Maryland MW508 due?
Forms W-2 and MW508 are due January 31, which is a Sunday in 2027, and the federal Q4 Form 941, Form 940, and W-2s fall on February 1, 2027.

Will Maryland’s paid leave deduction come out of my own paycheck?
If you’re a W-2 owner-employee, plan on it. Contributions begin January 1, 2027, and small employers skip the employer share while employees still contribute.

Talk to Burke’s Bookkeeping before your last 2026 run

We’ll look at what you’ve actually paid yourself this year, set the December true-up, get your premiums into the right W-2 boxes, and check the county rate on your MW507 so your January filings go out clean. We work with owners in Hagerstown, Frederick, and across Washington County.

Call (240) 850-3502 or reach us through our contact page. If your books aren’t current yet, start with catching the year up, then we’ll handle the tax planning side.

This article reflects federal and Maryland rules as of October 2026. Talk to a tax professional about your situation.

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