"If one of the officers has payroll withholding for a portion of the cost of the medical premium"

"Logically the expense to the business is the net amount after payroll withholding"

If I understand you correctly, you don't consider Net. You consider what is happening.

You need to know if that deduction is pre-tax or from takehome.

If it's pre-tax, it's simply a split off of the gross wage expense amount, and you want to examine how they treated the tax withholding requirements on that portion. The point of that provision is not to tax it the same as ordinary wages:

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

If it is a post-tax deduction, you want to confirm they did nothing to affect tax withholding; it would be no different than if the person comes in to pay their share manually and directly as out-of-pocket. In this example, only the company-paid amount is medical (company share) and the medical benefit tax treatment should appropriately reflect that condition. You don't want to double-dip: it's already been gross wages to end up with takehome pay, and only the additional amount the company pays is the medical portion.

The regulation is "more than 2%" not 5%.