Part 2 S Corporations question: S corporation paid

Part 2S Corporations

An S corporation paid $12,000 of health insurance premiums in 2025 for Ann, a 40% shareholder-employee. How is the $12,000 handled?

A In box 1 wages, but not in Social Security or Medicare wages
B Included in box 1 and also in Social Security and Medicare wages
C Excluded from her wages as a tax-free employee fringe benefit
D Reported as a distribution on her Schedule K-1

Show the answer and explanation

Answer: A. In box 1 wages, but not in Social Security or Medicare wages

Health insurance premiums paid by an S corporation for a more-than-2% shareholder-employee are deductible by the corporation as wages and included in the shareholder's box 1 wages, but are not subject to Social Security, Medicare or FUTA if paid under a plan for employees. The shareholder may then claim the self-employed health insurance deduction if eligible. Source: IRC 1372; Notice 2008-1; Form 1120-S instructions (2025), More-than-2% shareholders. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Treating the premiums as a tax-free fringe benefit for a 2% shareholder.

Practice more Part 2 S Corporations questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practicing →

Study note: S Corporations Part 2practice questions & mock exams

Related Part 2 practice questions

Raj's S corporation stock basis was $20,000 on January 1, 2025. His K-1 shows ordinary income of $15,000, tax-exempt interest of $2,000 and nondeductible expenses of $1,000; he received $25,000 of distributions. What is his stock basis at year end?Kay's S corporation stock basis at the start of 2025 is $10,000; she has no debt basis. For 2025 her share of ordinary loss is $8,000 and she received a $6,000 distribution. How much of the loss is allowed in 2025?A calendar-year corporation formed in 2024 wants S status starting January 1, 2025. March 15, 2025 fell on a Saturday. By what date must it have filed Form 2553 for the election to be timely?

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practicing →

Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.