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Is a shareholder-employee's health insurance deductible on the 1120-S?

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Kestrel Manufacturing LLC CT NY Add state Searching: Federal + CT (portal.ct.gov) + NY (tax.ny.gov)

Is a shareholder-employee's health insurance deductible on the 1120-S, and how does it flow to the W-2?

Verdict: Yes — the corporation deducts the premiums, but only if they're included in the more-than-2% shareholder's W-2 wages.1

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

AI-assisted research — verify before relying; not a substitute for professional judgment. · Researched Aug 13, 2026

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1 IRC §162(l) — Special rules for health insurance costs of self-employed individuals irs.gov ✓ verified · click for excerpt

2 Notice 2008-1 — Health insurance for 2% shareholder-employees irs.gov ✓ verified · click for excerpt …if the requirements are satisfied, the 2-percent shareholder-employee is eligible for the deduction under §162(l), and the premiums are included in the shareholder's gross income and reported as wages on Form W-2. Cached excerpt from irs.gov · retrieved Aug 13, 2026

3 Employment tax treatment of 2% shareholder premiums ⚠ unverified Couldn't verify — treat as a lead, confirm before relying.

4 Instructions for Form W-2c ⚠ unfetched irs.gov · Retry

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2% shareholder health insurance — 1120-S treatment Kestrel Manufacturing LLC CT Aug 13, 2026

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Reasonable compensation — documenting the study — Federal Aug 4, 2026

2025 1120-S preparation

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2% shareholder health insurance — 1120-S treatment

Saved Aug 13 · 4 sources · Federal + CT

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2025 1120-S preparation