Self-Employed Health Insurance Deduction for S Corp Owner

[crmck26]

When I go to add in the amount of health insurance premiums paid for the owner under box 17, code AD, I get to a screen to type in the description and amount. However, the screen also notes "we are not able to use these values in the program calculations." So the number imputed is there, but the program doesn't use it for calculations, therefore I cannot deduct it. It's a bizarre problem that makes the deduction impossible, as you cannot manually override the Schedule 1, line 17 for self-employed health insurance premiums paid box in the forms section. 

Someone must have run into this problem already, but I cannot find it anywhere. Using the Mac Desktop 2022 Premier version. 

Please help if you can. Thanks. 

[DawnC]

You may be able to use the Self-Employed Health Insurance (SEHI) deduction if you're at least a 2% shareholder in an S Corporation. To claim this deduction, the health insurance premiums must be paid or reimbursed by the S corporation and reported as taxable compensation in box 1 of your W-2.

The S Corporation can either purchase the policy in your name or reimburse you for the premiums you paid. The policy can also cover your spouse, dependents, and any nondependent children under the age of 27.

How to enter the Health Insurance Deductions as an S-corp Shareholder

See Self-Employed Health Insurance Deduction - IRS Pub 535

[Edited 04/03/23 |  12:15 PST]   @crmck26 

[Mike9241]

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.

[crmck26]

Thank you Dawn! I tried that and again this morning. When I go to the Self-Employed Heath Insurance screen, I get to his message that I should "locate the appropriate business activity on the topics list and enter your insurance premiums there." I've attached a screen shot. That just links back to the same screen once I do what is suggested. I think the issue is the number for health insurance listed in the Box 17 code AD not being used in the calculations. Am I missing a step or a way around this circle? 

[AliciaP1]

As Mike9241 posted, an S-Corp shareholder does not qualify for the Sel-Employed Health Insurance deduction.  The S-Corp is entitled to the expense deduction by paying the premiums or reimbursing you for the premiums.  This decreases the income from the S-Corp distributed and is how you get the benefit of the deduction.

@crmck26 

[dmertz]

@AliciaP1 , that's not what Mike9241 said.  The information provided by Mike9241 describes what is necessary for the more-than-2% S-corp shareholder to be able to claim the self-employed health insurance deduction.

In this case, you claim the deduction during the entry of the Schedule K-1 (Form 1120-S) where you mark the box that indicates that you personally paid health insurance premiums and the S-corp paid you wages.  TurboTax will then ask for the amount and include it on Schedule 1.

[crmck26]

Yes Mike and Alicia are correct. The issue I’m having is for whatever reason, as you can see in the first post, the walk though questions won’t allow me to get to a screen that either enters it properly or calculates the amount properly from the box is it entered into. I also can’t just manually enter it into line 17 on schedule 1, but I was able to the previous two years. Something in the program changed and I don’t know how to get it to recognize it correctly or manually override it. Any ideas?

[dmertz]

Insurance premiums paid by the S-corp for a more-than-2% shareholder must be reported by the S-corp  as wages.  Then, when you the shareholder are entering the Schedule K-1, in the follow-up to entering the Schedule K-1 TurboTax will present a page with several checkboxes where you must mark the box that indicates that you personally paid health insurance premiums and the S-corp paid you wages.  Because the S-corp was required to include the amount in your wages, you are considered to be the one who paid the premiums.

The selection that DawnC highlighted is never used to enter a self-employed health insurance deduction.  (Perhaps it was done there in the distant past, but that selection has not been used for many years.)