Are You an S Corp? Here’s What You Need to Know About Medical Reporting on Your W-2

Running an S Corporation (S Corp) comes with plenty of perks — limited liability, pass-through taxation, and flexibility in how you pay yourself. But it also comes with important compliance rules, especially when it comes to reporting health insurance for S Corp shareholders. Misreporting medical premiums on your W-2 can lead to IRS issues, lost deductions, and unnecessary stress — so it’s crucial to get it right.

Who Needs to Pay Attention

If you’re a shareholder who owns more than 2% of your S Corporation, this information applies directly to you. These shareholders are treated differently under IRS rules when it comes to health insurance benefits. If your S Corp pays for your health insurance premiums, those payments must be properly included on your Form W-2. This ensures both your business and your personal taxes stay compliant.

How Medical Premium Reporting Works

For S Corp shareholders owning more than 2%, health insurance premiums paid by the company must be reported as wages on the shareholder’s W-2.

Here’s what that looks like:

• The premiums are included in Box 1 (Wages, Tips, Other Compensation).

• They are not subject to Social Security or Medicare taxes, so Boxes 3 and 5 remain unaffected.

• Proper reporting allows the S Corp to deduct the premiums as a business expense and the shareholder to potentially claim the self-employed health insurance deduction on their personal tax return.

This dual benefit is what makes accurate reporting so important — both sides benefit when done correctly.

Why Accurate Reporting Matters

Failing to report shareholder medical premiums correctly can cause problems down the road. Inaccurate or missing reporting may lead to:

• IRS penalties for incorrect W-2 filings.

• Disallowed deductions for both the business and shareholder.

• Inaccurate tax returns that could trigger audits or compliance issues.

When your S Corp bookkeeping and payroll systems are set up properly, these issues can easily be avoided.

Best Practices for S Corp Medical Reporting

To stay compliant and maximize tax benefits, follow these best practices:

• Track premiums monthly: Keep detailed records of every health insurance payment made on behalf of shareholders.

• Coordinate with your bookkeeper or payroll provider: Make sure they know which shareholders own more than 2% and confirm that premiums are reported correctly on W-2s.

• Review W-2s before filing: Check all wage and deduction information for accuracy before submitting to the IRS.

A quick quarterly or year-end review can catch small errors before they turn into big compliance problems.

Final Thoughts

Accurate medical reporting isn’t just about following the rules — it’s about protecting your S Corp’s financial health and ensuring shareholders get the deductions they deserve. If you’re unsure whether your health insurance reporting is set up correctly or need help reviewing your W-2 process, Better Bookkeepers can help. We can help S Corps stay compliant, organized, and audit-ready. Reach out today to make sure your S Corp is on track for a smooth tax season.