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S-Corp medical insurance premiums deduction for its owners

Updated: May 13, 2020

Question: I am the 100% owner of a S-Corporation. Can I deduct medical insurance premium through the corporation? I purchased the insurance under my name and paid myself.

Answer: If you are over 2% shareholder of the S Corp, you can deduct the medical insurance premium paid or reimbursed through the S Corp on your personal tax return above the line. This can include accidental, medical, dental, and qualified long-term care insurance. The policy can be either in the name of the S corporation or shareholder. However, if the policy is in shareholder's name and shareholder pays the premiums, the S corporation must reimburse the shareholder.

The amount to be deducted is limited to the smaller of eligible health insurance premiums or net profit from the business.

The S Corp must report the premium amount as wages on shareholders' W-2 box 1.

If the insurance plan is non discriminatory and offered to all other employees, the cost of the premium is not subject to FICA and FUTA. Otherwise, The S Corp also needs to include the premium in Box 3 and 5 of W-2, and need to report the premium on 941 and 940 and pay the appropriate FICA, medicare and FUTA taxes.

In addition, please note that over 2 percent S Corporation shareholders are not eligible for salary reduction (pre-tax) contributions to a health savings account (HSA). If The S Corp contribute HSA on behalf of the over 2 percent shareholders, S Corp will treat the amount as distributions.

If you would like to make an appointment to discuss more, please give this office a call 415-704-8989 or email me at Book a meeting online.

More articles and blogs coming soon.

Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.

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