S-Corp Officer Health Insurance Deduction FAQs
Health and supplemental insurance premiums paid by an S corporation on behalf of a shareholder may be deductible from an officer's W-2 wages. Prior to your final payroll of the year, please share the total cost of your health and/or accident insurance premiums and HSA amounts with ASAP to report on your W-2.
Which insurance premiums and amounts are deductible from wages if paid by an S corporation?
The cost of health, dental, vision, supplemental/AFLAC, and long-term care premiums, as well as HSA contributions paid by an S corporation on behalf of a shareholder are deductible, so as long as the company has fulfilled the requirement to report amounts on the officer's W-2. These amounts increase the officer's Federal & State taxable wages, but are exempt from Social Security / Medicare and FUTA. Therefore, these amounts are included in Box 1 - Wages on a W-2, but not in Boxes 3 or 5. While not required, we typically include the amount as a memo in Box 14 - Other as a courtesy for your tax preparer.
Does including insurance premiums and HSA amounts increase my income taxes? Am I paying tax on the cost of insurance?
At a glance, it may appear that increasing your taxable wages also increases your tax liability. However, you should be able to deduct the amount on your 1040 return (Self-Employed Health Insurance Deduction Worksheet as long as health insurance premiums paid or reimbursed by the S corporation are shown as wages on your W-2.
What information do I need to provide to ASAP for year-end payroll processing?
Your account manager may start requesting this 2% shareholder health amount in early December. If ASAP is not providing you additional accounting services, please compile an accurate sum of all premiums paid for or reimbursed by the corporation on behalf of the officers and their dependents. If you have an HSA amount paid for by the company, please provide an itemized report.
- IRS.gov - S Corporation Compensation and Medical Insurance Issues
- IRS.gov - 1040 Instructions
- IRS.gov - Notice 2005-8
- NOLO.com legal encyclopedia article regarding S corporation salaries
Disclaimer: This information is provided as a self-help tool and does not constitute legal or financial advice. Laws, regulations and lending products are changing daily and decisions as to whether or how to use this information and/or what actions to take are solely those of the employer. The providers of this information disclaim any and all responsibility and liability for its accuracy, completeness or fitness for your particular business purposes.