All you need to do is adjust your W-2s, and have the company reimburse you for the cost of the insurance as of December 31, 2020. If you use a payroll service like QuickBooks payroll, or ADP, etc. they will know exactly how to do it.
As an S-Corp owner, you are entitled to a deduction for the cost of your health insurance, but only if certain requirements are met. The company must pay for the insurance premiums for the shareholders. The corporation can then deduct what it pays in premium as an ordinary business expense.
The premiums the company pays is a taxable fringe benefit for you, the shareholder. It must be added to your wages on form W-2. These additional wages are not subject to FICA or unemployment taxes, but should be included in box 1 of your W-2.
It’s not as bad as it sounds so far. You’re eligible for the self-employed health insurance deduction on your individual tax return.
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- The company takes a deduction for the premiums as an ordinary business expense.
- The company adds the premium amount to your wages, which increases your W-2 income.
- You take the Self Employed Health Insurance deduction on your personal tax return which reduces your taxable income.
This is the only way an S corporation shareholder can deduct the cost of health insurance premiums. The IRS has made it very clear: Follow these three steps or lose the deduction.
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