S Corp health insurance

IRS Notice 2008-1 explains that it is taxable income to the employee.

That means the W-2 is wrong and either needs to be amended or file Form 4852 to show the correct taxable amount.  In my opinion, there isn't really any way around that.

And because it will be added to the corrected W-2 or 4852, you can use the Schedule 1 deduction.

At this point I would disregard the error and leave W-2 wages as filed.  Take the deduction as employee benefit.  It will net out on the K-1.  Do not use Health Deduction on the 1040 or deduct it on Sch A.  Problem solved at the Federal Level.

Years ago I was advised by an IRS agent (not quoting law) to get around this issue, (a) leave the entity return with the insurance deduction, (b) add the S Corp paid health insurance to the 1040 other income line as Other K-1 Income and then (c) deduct it like regular self-employed health insurance on the 1040.  The net is two subtractions and one addition = one subtraction.  I've followed this method for years for those clients who handled it incorrectly and I found our months after the fact, and so far, no letters, notices or anything.