Seems like you need to have twice the W-2 wages to actually get the above the line shareholder health insurance deduction. While the 2% shareholder has to report the premiums as W-2 line 1 wages, the IRS worksheet uses line 5 wages as a ceiling, so since the shareholder insurance premiums are line 1 only and 0 for line 3 and 5, the shareholder has to have twice the amount of wages so that the non-insurance wages create line 5 (Medicare) wages of at least the amount of the shareholder insurance premiums. So the S-corp has to actually pay out extra wages as opposed to keeping them as pass through retained earnings. Unfortunately, this is additional wages that need to be paid above the guidance from the IRS under "S Corporation Compensation and Medical Insurance Issues" seems to indicate. The QBI deduction is also limited by 50% of the Medicare wages (line 5 of W-2), so the shareholders are forced to pay out additional wages beyond what are supported by what are justifiable as "reasonable compensation".
Am I missing something, or am I stuck with paying out double the wages in order to take advantage to the shareholder health insurance above the line deduction?
