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Payments of medical insurance premiums for S-Corp shareholder-employees who own more than 2% of the company stock should be treated as additional compensation. Add the amount of the preiums paid to the compensation deducted on page 1, line 7 ("Compensation of officers") of your corporate tax return. The premiums are then reported on your W-2. Note that although these premiums are treated as additional compensation, they are NOT subject to FICA or FUTA. They are however subject to federal and state withholding.

You could also issue a 1099 instead of a W-2. If you do that, make sure that when you pick up the income up on your personal tax return that you don't compute self-employment tax on the amount.
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