Under IRS tax laws, fringe benefits paid to shareholders holding more than 2% may receive different tax treatment from those holding 2% or less.
When you enter your deductions in TurboTax Business (Federal Taxes tab > Deductions), TurboTax will prompt you to enter salaries and benefits paid to shareholders and officers with greater than 2% ownership.
If the company has shareholders/officers holding 2% or less, TurboTax will present an additional column so you can enter those as well.
The S Corporation can deduct health and accident insurance premiums paid on behalf of shareholders that own 2% or more of the S Corporation as fringe benefits.
These benefits are reported as wages for income tax withholding purposes on the shareholder-employee’s Form W-2 (Box 1). They are not subject to Social Security, Medicare or unemployment taxes.
The shareholder-employee is allowed to deduct medical insurance premiums paid by the S Corporation on behalf of the employee, the employee’s spouse, and dependents, if the coverage was established by the S corporation. Previously, a >2% shareholder was not considered an employee; therefore, not eligible to deduct the insurance premiums paid by the S corporation.