medical insurance for officers paid by s -corp company

Officers of an S-Corp are employees and the medical insurance paid on their behalf must be added to their W-2 wages.

The specific ruling applies to more than 2% owners of the corporation.  If policies are included as benefits to all the employees, including the owners, it would be a non-taxable fringe benefit, deductible to the corporation and treated as all other medical insurance paid for an employee by an employer, as a pre-tax deduction.

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Section 106 provides an exclusion from the gross income of an employee for employer-provided coverage under an accident and health plan. A 2-percent shareholder is not an employee for purposes of §106. Treas. Reg. §1.106-1; section 1372(a). Accordingly, the premiums are not excludible from the 2-percent shareholder-employee’s gross income under §106.

The above is from this link http://www.irs.gov/irb/2008-02...

Publication 15-B says 2% shareholders are NOT considered employees for purposes of cafeteria plans

http://www.irs.gov/publication...