Income inclusion for self-insured medical plan benefits paid to S shareholders

Effective for tax years beginning Jan. 1, 1991, Rev. Rul. 91-26 provided guidance for reporting requirements for accident and health insurance premiums paid by S corporations on behalf of its 2% shareholders. In its ruling, the IRS stated that, under Sec. 1372, these premiums paid on behalf of the 2% shareholder/employees as consideration for services rendered will be treated like guaranteed payments from a partnership under Sec. 707(c). As such, the premiums are deductible in full by the corporation and includible in the shareholder's gross income. The shareholder then deducts a portion of this amount from gross income on his personal tax return to arrive at adjusted gross income (AGI). The rest is a Schedule A itemized deduction subject to the 7% of AGI floor.