In general, health and accident insurance premiums paid, on behalf of a greater than 2-percent S corporation shareholder-employee, are deductible by the S corporation. It is to be reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.

A 2% shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums, subject to some deduction requirements.

Since these are wages, they should be reported on Form W-2, Box 14.

These guidelines should be considered to report, on Form W-2, the cost of medical insurance premiums paid on behalf of 2%+ shareholder-employees:

• Health insurance premiums are additional wages reportable in Box 1 (Wages) of Form W-2 and are subject to Federal income tax withholding.
• The premiums are NOT included in Boxes 3 and 5 of Form W-2 and are not subject to Social Security or Medicare (FICA), or Unemployment (FUTA) taxes.

There is no standard list of W-2 codes for Box 14, so employers may list any description they choose to account for the 2% health premiums – examples include “SCORP,” “SEHLTH,” “INS,” amongst others. This is the amount the shareholder deducts on Line 16, Schedule 1 (Form 1040) as a self-employed health insurance deduction.

For more information take a look at this IRS.gov link, or give us a call.