Fringe Benefits # 15 B
Fringe Benefits # 15 B
Business Expenses # 535
Business Expenses # 535
Tax Guide for Small Business - Individuals who file Schedule C
Tax Guide for Small Business – Individuals who file Schedule C

How does the Section §106 or
Self Employed Deduction
work for S Corp Owners?

Treating Medical Insurance Premiums as Wages

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.

However, these additional wages are not subject to Social Security, or Medicare (FICA), or Unemployment (FUTA) taxes if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.

A 2-percent shareholder-employee is eligible for an above-the-line deduction # 29 1040 in arriving at Adjusted Gross Income (AGI)

Line 29 Self Employed Deduction
Line 29 Self Employed Deduction

for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements.  If, however, the shareholder or the shareholder’s spouse was eligible to participate in any subsidized health care plan, then the shareholder is not entitled to the above-the-line deduction.  IRC § 162(l). Self Employed   Learn More IRS Page on this very question.

IRS Site on what forms S Corps have to fill out

INSTANT FREE Quotes & Benefits for S. Corp and Self Employed
With at least ONE non spousal w-2 employee  ♦  Owners ONLY

If an S corporation pays accident and health insurance premiums for its more­ than­ 2% shareholder­ employ­ees, it generally can deduct them, but must also include them in the share­holder’s wages subject to federal in­come tax withholding.    Learn more in Publication 15­B.
.
The insurance plan must be established, or considered to be established, under the  business.
.
For more­ than­ 2% shareholders, a policy can be either in the name of the S corpora­tion or in the name of the shareholder.  You can either pay the premiums yourself or the S corporation can pay them and report the premium amounts on Form W­2 as wa­ges to be included in your gross income.  However, if the policy is in your name and you pay the premiums yourself, the S cor­poration must reimburse you and report the premium amounts on Form W­2 in box 1 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be estab­lished under your business  Learn More IRS Publication 535
.
Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, Publication 15b
.
Employees premium would still be deductible as a business expense under Section 106.
Tax Return for S Corp # 1120 S - Health Insurance Deduction
Tax Return for S Corp # 1120 S – Health Insurance Deduction
Email us, if you would like the relevant pages from the 2016 Tax Facts on Individuals & Small Biz.
Related Pages in Business Tax Credit and Self Employed Section

AB 1672 – (1992 to 2013) Small Group Health Rules prior to Obamacare

Health Insurance Deduction Line 29  for self employed

Schedule C – Line 12 Biz Income or Loss,  Line 29 Health Insurance Premiums,  Line 37 Adjusted Gross Income,   MAGI Income

Home Office Deduction

Self Employed Deduction for S Corp Owners

Details on Obamacare Subsidy and Line 29 deduction

Self Employed – New Definition under Health  Care Reform – Introduction

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