S-Corporation Officer Health Insurance
Why is my CPA instructing me to report to my payroll provider the cost of my health and/or accident insurance premiums?
Medical Insurance Premiums As Wages: The cost of any health, dental, vision, supplemental/AFLAC, & long-term care premiums and often HSA contributions paid by the 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 W2. The amount increases the officer's Federal & Colorado taxable wages, but is exempt from Social Security/Medicare and FUTA. Therefore it is included in box 1 wages, but not in box 3 or 5. While not required, we typically will include the amount as a memo in box 14 other on the W2 as a courtesy to your preparer.
Does this increase my income taxes? Am I paying tax on the cost of insurance? -- At a glance, many see this increase in taxable wages negatively feeling it will increase their taxes. However, you should be able to deduct the amount on your 1040 return schedule 1 line 29 (Self-Employed Health Insurance Deduction) as long as health insurance premiums paid or reimbursed by the S corporation are shown as wages on your W2.
What do I need to provide to ASAP? Your account manager may start requesting this 2% shareholder health amount, from you 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 the behalf of the officers and their dependents. If you have an HSA amount paid for by the company, please provide itemized.
Information on this page was partly compiled from these sources:
- IRS.gov - S Corporation Compensation and Medical Insurance Issues
- IRS.gov - 1040 Instructions page 90-91
- IRS.gov - Notice 2005-8
- IRS.gov - Wages and Compensation for S Corporation Officers FS-2008-25
- Colorado.gov Employer Services FAQ, Premiums Question 6
- NOLO.com legal encyclopedia article regarding s-corporations salaries