How does the 2% Shareholder pay rate work and who is it for?

A 2 percent shareholder-employee in an S-corp can deduct accident insurance premiums and health insurance premiums, defines a 2-percent shareholder as “any person who owns (or is considered as owning within the meaning of § 318) on any day during the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock possessing more than 2 percent of the total combined voting power of all stock of such corporation.”

Now, an important thing to note is that premiums are included on the shareholder’s W-2 strictly for income tax withholding tax purposes; those additional wages are not subject to FICA taxes (Social Security and Medicare taxes) or Federal Unemployment Tax Act (FUTA).