Can someone clarify for me the tax treatment of premiums and benefits received by 2% or greater shareholders from a partially self funded plan in an S-Corp? I have been told by a CPA that the equivalent fully insured premium would be taxable to the 2% or greater shareholders. I have also been told by a TPA that the benefits paid for claims incurred by the 2% or greater shareholder and his or her covered dependents would be taxable as well.
Any comments would be appreciated.

Partners and sole proprietors are considered self employed. Thus company paid premiums turn into income, as do paid claims.On the other hand, self-employed are allowed to deduct 60% in 1999 of amounts paid for medical care for self and dependents on their own tax statements. Using fully insured equivalent would not be appropriate unless the plan is fully insured.