If you're an officer in an S-Corp, you're required to pay yourself a "market rate" salary for payroll tax purposes, and cannot legally use the salary/draw distinction as a tax avoidance strategy. If you're not paying yourself a salary, the IRS gets very annoyed.
If you're a sole proprietor, the tax impact should be equivalent whether you choose to take draws or salary:
> Sole proprietors and members of partnerships are free to pay themselves — or otherwise take the profits out of their businesses — whenever they’d like. Payroll withholdings do not apply, but each individual essentially pays the equivalent on his or her reported income at tax time.
Paying the health insurance through payroll would be in addition to the fair and reasonable salary. Say I set a fair and reasonable salary of $65,000, then I want the S-Corp to cover my health insurance $20,000 a year then I need to set payroll to $85,000.
Yes, I could continue to pay myself just $65,000, but the IRS could come knocking and say, "you said you paid for health insurance through S-Corp payroll, so that means you only gave yourself a $45,000 salary which is not fair and reasonable.
If you're a sole proprietor, the tax impact should be equivalent whether you choose to take draws or salary:
> Sole proprietors and members of partnerships are free to pay themselves — or otherwise take the profits out of their businesses — whenever they’d like. Payroll withholdings do not apply, but each individual essentially pays the equivalent on his or her reported income at tax time.
https://quickbooks.intuit.com/r/payroll/salary-or-draw-how-t...