Choice "C" is correct. $7,200 of insurance premiums (the amount of family coverage premiums, as indicated in the question) is includible in Mill's gross income.Rule: Fringe benefits paid by an S corporation are deductible by the S corporation only for non-shareholder employees and those employee-shareholders owning 2% or less of the S corporation. Other fringe benefits paid are deductible by the S corporation if included as part of gross income from the S corporation for the individual receiving the benefits (i.e., included as part of income on the shareholder's W-2).
Choices "d", "b", and "a" are incorrect, per the above rule.