In the below, we find that payments made by S-Corporations for employees health insurance is deductible for the corp and not taxable for the employees.

However, for S-Corporation owners (more than 2% shareholders), they need to follow special provisions which require that the health insurance premiums be added to the officer / S-corp shareholders’ W2 (Box 1 of Federal wages, corresponding to box 2 of 941), then in box 14 it must be marked as 2% health insurance.  Doing so, you will be in compliance with the tax laws in recording the health insurance of the 2% S-corp shareholder on the W2’s properly.  On the individual shareholders’ personal tax return form 1040, you would then deduct the health insurance as adjustments to income on form 1040.  Doing these steps will result in no additional taxes to be paid in most cases and you  will be in compliance with the law.  If you don’t do these steps, then your health insurance for the S-Corporation Shareholder is not deductible or  if you deduct it, it can be adjusted as being non-deductible.