Special Rules for Reporting S Corporation Shareholder Health Insurance Premiums

The IRS released special rules regarding the deduction by more than two-percent shareholder-employees of S corporations for health insurance premiums paid by or reimbursed by the S corporations and included in the shareholders’ income.

A more than two-percent shareholder-employee may deduct amounts paid for insurance if the insurance plan was established by the S corporation. A plan is considered to be established by the S corporation if the S corporation makes the premium payments in the current tax year or the more than two-percent shareholder makes the premium payments and is, then, reimbursed by the S corporation in the current tax year. Payments, whether made directly by the S corporation or reimbursed by the S corporation, must be included in the shareholder’s wages and reported on the shareholder’s Form W-2, Wage and Tax Statement. The shareholder reports that amount as gross income on Form 1040 for 2018.

The shareholder-employee can take a deduction in computing adjusted gross income, Self-employed health insurance deduction, of Form 1040 for amounts paid during the taxable year for insurance that constitutes medical care for the taxpayer, his or her spouse, and dependents.

If you have any questions or if you would like more information, contact Fred Schutz at (856) 722-5300 ext. 201 or Dave Gill at ext. 210.