Reporting Shareholder Health Insurance on the K-1
Amounts for an 1120S should not be allocated to the shareholders in a manner different than the shareholder's percentage of ownership. This would create a second class of stock, thus nullifying the S-Corporation election.
Shareholder health insurance for a more than 2% owner is to be reported on their W-2, and if possible the shareholder would make an adjustment on the front of their 1040 return. Less than 2% shareholder health insurance is included with the expense for other employees as a deduction by the entity.
Page 16 of the Instructions for Form 1120S states:
"Report amounts paid for health insurance coverage for a more than 2% shareholder (including that shareholder’s spouse, dependents, and any children under age 27 who are not dependents) as an information item in box 14 of that shareholder’s Form W-2. A more-than-2% shareholder may be allowed to deduct such amounts on Schedule 1 (Form 1040 or 1040-SR), line 16. To find out if the shareholder can claim this deduction, see Self-Employed Health Insurance Deduction in chapter 6 of Pub. 535, Business Expenses."
Overrides entered on Schedule K-1 do not work because of the above statements and because there is no way to match the override descriptions on the K-1’s with the description on the Schedule K for the same line.