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:
- You must get the cost of the insurance on the S corporation’s books.
- Your S corporation must include the health insurance premiums on your W-2 form.
- You must (if eligible) claim the health insurance deduction as an above-the-line deduction on Form 1040.
The three-step procedure also applies (and this could be a surprise) to your spouse, children, grandchildren, and parents if they work for your S corporation and get health insurance coverage, even if they don’t own a single share of S corporation stock directly.
You need to get this 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.
If you or your S corporation did not handle this correctly in the past, we need to get busy amending those returns to create and protect the proper tax deductions. If this is the situation, please do not hesitate to reach out to your team at Luster Tax Consulting to work through this with you. Please use the following link to book your complimentary strategy call with your team at Luster Tax Consulting.