How Shareholder Health Insurance gets reported on the K-1

Amounts for an 1120-S 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.

Less than 2% shareholder health insurance premiums are included with the expense for other employees as a deduction by the entity.

Shareholder health insurance premiums for a more than 2% owner are reported on the shareholder's W-2. The shareholder may be able to claim the Self-Employed Health Insurance Deduction on their 1040 return. Page 16 of the Instructions for Form 1120-S 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 aren't 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), line 17. To find out if the shareholder can claim this deduction, see Self-Employed Health Insurance Deduction in chapter 6 of Pub. 535, Business Expenses."

In the 1040 return, more than 2% shareholder's health insurance will NOT flow anywhere from Form W-2. The amount reported as SEHI on box 14, along with the wages in box 5, should be entered on the SEHI screen. An amount must also be entered on line 11, "Medicare wages from an S Corporation," of screen SEHI to calculate the available Self-employed health insurance deduction.