The corporation files Form 8941 (Credit for Small Employer Health Insurance Premiums) with its Form 1120S and reports the credit on Schedule K, line 13g (Other credits ). It is reported to the shareholder on Schedule K-1, line 13, code P (Other credits).
An S shareholder who directly or indirectly owns more-than-2% of the S corporation's stock is not taken into account as an employee for purposes of the credit (i.e., they are excluded employees) [§45R(e)(1)(A)(ii)]. The S corporation must reduce its deduction for health insurance premiums by the amount of the credit [§280C(h); Notice 2010-44].
The shareholder is not required to complete Form 8941, but rather enters the amount of the credit from Schedule K-1 directly on Form 3800, Part III, Line 4h.