How to Deduct S Corp Health Insurance Premiums

How to Deduct S Corp Health Insurance Premiums

If you are a shareholder of an S corporation and the company provides you with health insurance coverage, you may be able to deduct the premiums paid for that coverage from your taxes. However, there are certain requirements that must be met in order to qualify for this deduction. In this article, we will explore those requirements and explain how to deduct S corp health insurance premiums.

Requirement 1: The S Corporation Must Pay for the Insurance

In order for shareholders todeduct health insurance premiumspaid by the S corporation, the company must be the one paying for the insurance. This means that the premiums must be included as part of the shareholder's W-2 wages. If the shareholder pays for the insurance directly, they cannot deduct the premiums.

Requirement 2: The Shareholder Must Be an Employee of the S Corporation

The shareholder must also be an employee of the S corporation in order to qualify for the deduction. If the shareholder is not an employee, they cannot deduct the premiums even if the company paid for the insurance.

Requirement 3: The Shareholder Must Own Less Than 2% of the S Corporation

The deduction for health insurance premiums paid by an S corporation is only available to shareholders who own less than 2% of the company. If a shareholder owns more than 2%, they are considered to be a "more-than-2% shareholder" and are subject to different rules for deducting health insurance premiums.

How to Deduct S Corp Health Insurance Premiums

If the requirements listed above are met, shareholders can deduct the premiums paid for their health insurance coverage. The deduction is taken on the shareholder's personal income tax return, not on the S corporation's tax return. Here are the steps to take to deduct S corp health insurance premiums:

Step 1: Obtain Form 1095-B

The S corporation should provide each shareholder with a Form 1095-B, which shows the amount of health insurance premiums paid on their behalf. The shareholder will use this form to calculate the amount of their deduction.

Step 2: Calculate the Deduction

The shareholder can deduct the full amount of the health insurance premiums paid by the S corporation on their behalf, up to the amount of their W-2 wages from the company. If the shareholder has multiple sources of income, they will need to calculate the percentage of their total income that comes from the S corporation in order to determine the maximum amount of the deduction.

Step 3: Report the Deduction on the Personal Income Tax Return

The deduction for S corp health insurance premiums is taken on Form 1040, Schedule 1, Line 16. The shareholder will need to attach a copy of the Form 1095-B to their tax return as proof of the deduction.

Conclusion

Deducting health insurance premiums paid by an S corporation can be a valuabletax savings strategyfor shareholders who meet the requirements outlined above. However, it is important to ensure that the company is paying for the insurance and that the shareholder is an employee who owns less than 2% of the company. If these requirements are met, the deduction can be easily calculated and taken on the shareholder's personal income tax return.

In addition to deducting health insurance premiums, it is important for individuals to consider other insurance options to protect themselves and their families financially. This may include life insurance, disability insurance, and long-term care insurance. Working with a knowledgeable insurance advisor can help individuals determine the best insurance options for their needs and budget.