the tax rules for s-corp health insurance for the shareholders are:
1a) the policy must be in the name of the corporation and it must pay the premiums or
1b) must be in the name of the shareholder.
if 1b) the corporation must reimburse the shareholder
2) the S-corp takes the deduction on the same line as the shareholder's wages
3) the w-2 for the shareholder must include the insurance as wages on box 1
(the w-2 can then show the premiums paid in box 14 like SCORP INS)
**** failure to follow the tax rules and the IRS says the shareholder is not entitled to a deduction.
from 1120S instructions
Include fringe benefit expenditures
made on behalf of officers and employees
owning more than 2% of the corporation's
stock. Also report these fringe benefits as
wages in box 1 of Form W-2.
Report amounts paid for health insurance coverage for a more-than-2% shareholder (including that shareholder's spouse, dependents, and any children under age 27 who aren't dependents) as an information item in box 14 of that shareholder's Form W-2. A more-than-2% shareholder may be allowed to deduct such amounts on Schedule 1 (Form 1040), line 17. To find out if the shareholder can claim this deduction, see Self-Employed Health Insurance Deduction in chapter 6 of Pub. 535, Business Expenses.
Health insurance is a fringe benefit
from PUB 535
Self-Employed Health Insurance Deduction
the following statements must be true.
You received wages in 2022 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.
The insurance plan must be established, or considered to be established, as discussed in the following
•
For more-than-2% shareholders, a policy can be either in the name of the S corpora-tion 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 W-2 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 in box 1 of Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan won’t be considered to be established under your business.
Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer can’t be used to figure the deduction.
