Even with no profit or any money received from the corporation, because the corporation paid for the insurance, W-2s MUST be issued for that. The corporation needs to add the insurance payment to box 1 of your W-2, and then the corporation can deduct it as wages. If you have OTHER wages from that same corporation, then you might be able to use the Self Employed Health Insurance deduction.
I highly recommend going to a tax professional for your corporate return. Doing things wrong will easily cost you thousands of dollars.
<a rel="nofollow" target="_blank" href="http://taxexperts.naea.org/">http://taxexperts.naea.org/</a>
I fully agree ... if you do have an S-corp then seek qualified help to get your books & payroll set up correctly. The alternative is not pretty and very costly.
The IRS position is
that an S-Corporation MUST pay a reasonable compensation to an officer before
non-wage distributions may be made. The reason is that they feel that
non-wage distributions when no wages are paid is an avoidance of social
security taxes. From the IRS website at http://www.irs.gov/businesses/small/article/0,,id=203100,00.html :
S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.
Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation.
Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense and subject to employment taxes."
The page cites Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000) as one judicial finding on the IRS's authority to reclassify distributions to wages subject to employment taxes. Factors to determine reasonable compensation are given in the ruling.
The AICPA has an interesting article on this topic here: http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx
You also might want to read a lively discussion on the Tax Almanac website here: http://www.taxalmanac.org/index.php/Discussion_Forum_-_Tax_Questions . The substance of the discussion seems to be that taking a reasonable salary is not optional and, if you took distributions with no salary, the distributions should be changed to salary with appropriate employment tax returns being filed (late, if necessary.)
The fastest way to get audited as an S-Corporation is to not report wages to officers on page 1 of the return.