Health Insurance Deduction for S-Corp
If you own more than 2 percent of an S corporation, you have to do three things to claim a deduction for your health insurance:
1. You must get the cost of the insurance on the S corporation’s books.
2. Your S corporation must include the health insurance premiums on your W-2 form.
3. You must (if eligible) claim the health insurance deduction as an above-the-line deduction on Form 1040.
The three-step health-insurance procedure also applies under attribution rules (and this could be a surprise) to your spouse, children, grandchildren, and parents if they work for your S corporation, even if they don’t own a single share of S corporation stock directly.
You need to get this S corporation health-insurance thing right. Without the W-2 treatment, the S corporation does not get a tax deduction.
With the correct W-2 treatment, the more than 2 percent shareholder who finds the health insurance premiums on his or her W-2 can claim the self-employed health insurance deduction on Form 1040, provided he or she is not eligible for employer-subsidized health insurance through another job or a spouse’s job.
There are unique strategies for maximizing your health insurance deductions, regardless of your entity type. The best time to address these issues is during the tax year ... not at tax preparation time.
As always, speak with your tax professional soon, to make sure you address your tax return before the end of the tax year. As always, I recommend contacting an Enrolled Agent, who understands your industry and your entity type.
An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years. (https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information)