The rule. Premiums paid by an S corporation on behalf of a more-than-2% shareholder-employee are treated as compensation, deductible by the corporation and reportable in box 1 of the shareholder's W-2.12 They are not subject to Social Security or Medicare tax when paid under a plan established by the corporation.3

Applied. For Kestrel, the $14,200 of premiums must appear in the shareholder's box 1 wages before the corporation takes the deduction. If the W-2 has already been filed without them, a corrected W-2 is the cleaner path than a schedule adjustment.4