You may be able to deduct all the medical, dental and qualified long-term care insurance paid by the corporation on behalf of you and your family. In order to deduct the premiums, the following rules are in place:
- The policy must be in the name of the S corporation or if the shareholder is the only employee the policy can be in the name of the shareholder.
- The premiums must be paid by the corporation and included on your Form W-2 as wages.
- In the case of a single shareholder/employee who pays the premiums, the corporation must reimburse the shareholder for the cost.
- If family members are also employees, the insurance policy must have everyone covered under a family plan and the plan still has to comply with the provisions of the Affordable Care Act.
- Arrangements for reimbursements to both a shareholder-employee and non-shareholder employees are considered a group plan and could trigger an excise tax of $100 per day, per employee with respect to the non-shareholder employees if the plan is not properly set up as a group plan paid by the business.
If you have an outside company handling your payroll, please notify them before the end of the year of any insurance premiums paid by the corporation on your behalf. Be sure to indicate the premiums are for shareholders of an S corporation. If the insurance premiums are not provided and included in the last payroll, the W-2s will need to be amended at an additional cost to the company.
The premiums are included on the Form W-2 in Box 1 (wages subject to federal withholding) and Box 14 (other information) but are not included in Box 3 or Box 5 (wages subject to Social Security and Medicare).
This rule also applies to the health insurance paid on behalf of your parents, spouse, children or grandchildren who are working for your S Corporation, even if they are not shareholders of the corporation. The cost of the premiums paid on their behalf must also be included in wages on their Form W-2 in Box 1 and Box 14.
If you do not have a payroll company and need assistance, please contact our office.