Business owners who are covering their health insurance premiums through a company in which they are a greater than 2% S-Corp shareholder-employee need to remember that these premiums are deductible by the S-Corp and therefore reportable as wages on the shareholder-employee’s Form W-2 and subject to income tax withholding. You’ll find this additional compensation included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2 as these additional wages are not subject to SSI, FICA or FUTA tax.
A 2% shareholder is someone who owns more than 2% of the business or controls more than 2% of voting power of all stock of the corporation. Not sure if you’re a more than 2% owner? Ask your comptroller, then make sure this compensation is reported appropriately. For more details, visit: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues