S Corporation & Deductible Health Insurance for 2% Shareholders .
Dear Taxpayers, as you know, business owners in many cases may deduct the cost of health insurance premiums paid during the year. This is true for 2% S corporation shareholder employees even if the insurance plan is in the name of the employee shareholder (your name) as long as you follow very strict IRS rules.
Here are a few of the rules:
Either you or your S corporation must make the premium payments for a policy that covers you, a spouse, and/or dependents. If you make the premium payments, your S corporation must reimburse you for those payments in the same taxable year. If you made the premium payments instead of the S corporation making the payments, there can be no deduction if the premiums are not reimbursed by the S corporation the same taxable year.
You must provide written proof of the premium payments to the S corporation for reimbursement.
The payments you make are taxable wages to you and they must be included in your Form W-2 income. You end up not paying any income taxes on the W-2 income because you deduct the health insurance premiums as an adjustment to income. In addition, this income is not subject to social security, Medicare, or FUTA taxes.
Your deduction is limited to the net income from your S corporation. If the S corporation has a loss, then you are not eligible to deduct your health insurance costs.
These are the basic rules for deducting health insurance premiums for an S corporation. To take advantage of the deduction, make sure you follow these rules to the letter of the law. If you have questions about which I can help, please donít hesitate to call my office to discuss them.
Thomas Urquilla, E.A.