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Self-Employed Health Insurance Deduction

I'd like to take advantage of the Self-Employed Health Insurance Deduction on my individual tax return by having my S-Corporation reimburse me for my health insurance premiums. I know that this requires the corporation to include the amount of the premiums reimbursed on my W-2 gross wages. Currently, the corporation doesn't pay me any wages, so I haven't dealt with a W-2 in the past. What are the tax implications of having my corporation pay me wages that are reported on a W-2? What additional paperwork will I need to file with the IRS if the corporation starts reporting wages to me on a W-2? I'm in Texas, so there is no state income tax to worry about, just federal.

2 Replies
Level 15

Self-Employed Health Insurance Deduction

S corporations are required to pay wages to their employees of which you are one of them. Forms that are required will be the W-2, W-3, 940 & 941 plus any unemployment. If you do not know what you are doing I highly suggest finding a local professional to instruct you on the required forms needed to file the payroll correctly. Failure to file payroll correctly can amount to large penalties and fines so please get educated ASAP.
Level 11

Self-Employed Health Insurance Deduction

@Critter is absolutely correct in that you need to find a tax professional that you are comfortable with to get you started down the right path.


In addressing your general question on impact:

  1. Wages paid to you will be deducted as an expense and lower the reported taxable income to the shareholder(s).  This part is almost a wash; no W-2 income to report, however, higher income from the S corporation vs reporting W-2 income and lower S corporation earnings.
  2. The S corporation will now be paying 1/2 of your SS.  Currently neither you or the S corp are paying into SS system.
  3. Not paying yourself wages could cause a higher risk of being audited by the IRS.  This is a highly scrutinized area for the IRS
  4. Make sure you discuss other fringe benefits that impact a 2% or more shareholder
*A reminder that posts in a forum such as this do not constitute tax advice.*
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