My single owner Scorp company paid my health insurance premiums but I did not add to my W-2 wages. Should I add that amount to distributions or to my wages? Thanks

[GeoffreyG · Accepted solution]

If your S-corp paid your health insurance premiums, you should include this total (annual) amount in Box 1 of your W-2 (but not Boxes 3 or 5).  That will record the health insurance as a deductible compensation expense for your S-corp on its Form 1120S (and as taxable wage income to you, on your personal Form 1040 tax return).  You will then be further eligible to take a self-employed health insurance deduction on your Form 1040 . . . thus eliminating the extra taxation to you individually, that was created by reporting the extra W-2 Box 1 wage income.

For more information on this, as well as a formal discussion, please refer to the following IRS.gov webpage:

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

In particular, you may find the sections titled "Treating Medical Insurance Premiums as Wages" and "Health Insurance Purchased in Name of Shareholder" especially relevant.

For mechanical instructions on how to take the self-employed health insurance deduction for 2% + S-corp shareholders in TurboTax, you can refer to the details and steps found here:

https://ttlc.intuit.com/questions/2966948-s-corp-self-employed-health-insurance-deduction

Thank you for asking this important question.

[davidsimshomes]

Very helpful! Thank you Geoffrey!

[davidsimshomes]

aca affect scorp

[GeoffreyG]

Hello again, davidsimshomes:

Thank you for your kind words.  Yes, the Affordable Care Act (a.k.a. Obamacare) can affect your tax return, where the taxpayer both claims the self-employed health insurance deduction, and is eligible for an ACA health insurance premium credit.

A full discussion of this is topic is beyond the scope of this answer, and the space allowed for doing so (although I do indicate below where you can in fact read such a complete discussion).

The main problem you see is that a taxpayer's ACA premium tax credit (a separate and additional tax benefit, calculated on IRS Form 8962) is based on the amount of your Adjusted Gross Income.  However, your Adjusted Gross Income is itself determined, in part, by the amount of your ACA tax credit.  Thus, there is a circular reference here, and a significant mathematical issue as a result.

The IRS itself recognized this as one of the inherent flaws (or inconsistencies) in the way that the ACA was written into law, and so in 2014 they issued formal taxpayer guidance on the matter, called Revenue Procedure 2014-41 (or Rev. Proc. 2014-41).

An excellent analysis of all this, as well as a complete answer to the question (with all of the nuances and details) of how the ACA affects the self-employed health deduction, is provided at the following (3) internet links:

<a rel="nofollow" target="_blank" href="https://www.healthinsurance.org/obamacare/self-employed-health-insurance-deduction/">https://www.hea...>

<a rel="nofollow" target="_blank" href="https://www.healthinsurance.org/faqs/my-premium-subsidy-is-dependent-on-my-agi-but-im-self-employed-...>

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-drop/rp-14-41.pdf">https://www.irs.gov/pub/irs-drop/rp-14-41.pdf</a>

Hopefully this additional information is helpful to you, and thanks again for a good question.

[davidsimshomes]

Hi Geoffrey or any TurboTax guru. When putting my S corp owner company paid health insurance premiums in box 1 of my W-2, should this amount also be in box 16 for state wages? Thanks much!

[GeoffreyG]

Hello davidsimshomes:

The answer to your question is "yes."  If you are reporting taxable wage income in Box 1 (federal) of your W-2, then those same wages are taxable as well by the state in which they were earned.  Thus, you would want to input those wages in Box 16 of your W-2 as well.  The only exception to this would be if your S-Corp "employed" you in multiple states, in which case you could have more than one state applicable in W-2 Boxes 15, 16, and 17 -- subject to the mathematical constraint that the sum of Boxes 16 (states) should "add up" to Box 1 (federal) of the W-2.

Regards.

[simplemark1]

For a S-corp member to be able to deduct health insurance premiums on line 29 of your 1040, your Medicare wages (box 5 of W-2) must equal or exceed your total health insurance premiums for the year.  Your W-2 box 1 is not the limiting factor on whether your health insurance can be deducted on the first page of your 1040.  The Form 1040, line 29 health insurance deduction is limited by your Medicare wages.  You can deduct health insurance premiums up to the amount you have in box 5.  If your box 5 wages don't cover all your health insurance premiums, you can still deduct the balance of your health insurance cost amount on Sched A, but only the portion that exceeds 10% of your income....but that's not nearly as sweet as a line 29 deduction.

[TaxGuyBill]

@simplemark1   Health insurance does NOT go in Box 5.  Because Box 5 is the limiting factor, that essentially means you have to have at least that much of wages, besides what was added for health insurance.

[simplemark1]

As I say in my answer above, "your Medicare wages (box 5 of W-2) must equal or exceed your total health insurance premiums for the year"  and "Line 29 health insurance deduction is limited by your Medicare wages".  I'm not saying to put your health insurance in box 5, I'm saying that box 5 wages is the limiting factor in whether you can deduct health insurance on line 29 of your 1040.

[June YW]

Hi,

I have a question regarding medical insurance premium for s corp.  When I enter the compensation for officer (from Box 1 of W2) in 1120S and then enter medical insurance premium in Deduction section "compensation and benefits", the total income becomes more than the total compensation by the insurance premium amount.  So, should I not enter medical premium paid in the Deduction section?

Also, when I file personal return, can I deduct the premium again?  This is in effect deducting the premium twice, once on 1120S and once on schedule 1. Is it correct?

[ThomasM125]

An S-Corporation more then 2% shareholder's health insurance premiums should be reported as wage income on the W-2 form in box 1. That way when the shareholder enters the wages on his or her personal tax return, the taxpayer may be able to deduct the premiums as self-employed health insurance. If they weren't entered as such on a W-2 form, technically they are not deductible by the S Corporation, so they shouldn't be entered on the S corporation tax return. 

This is so because the deduction for the premiums is a personal tax issue in that they aren't always deductible. For instance, if the shareholder was eligible to be on the health insurance policy of a spouse, then the shareholder heath insurance would not be deductible. So, you can't deduct it on the S corporation return as it may not be deductible by the shareholder. @davidsimshomes 

You don't deduct health insurance premiums as such for a more than 2% shareholder on an S corporation return. You just enter the deduction as a part of officer wages. When you enter your W-2 income on your personal return, that increases your income by the amount of the officer/shareholder insurance premiums. You then deduct them as self-employed health insurance as is allowed on your personal return. Thus the insurance premiums are deducted on the S corporation return as wages, then added as wage income on form 1040, then deducted as self-employed health insurance. So there are two deductions and one add to income, which nets out to one deduction! @June YW 

[Mike9241]

If  the S corporation's only employees are shareholders, the S corporation cannot provide health insurance as a tax-free benefit. Essentially, for shareholders with more than a 2% share in the S corporation, any health insurance premiums must be included as compensation. Health insurance premiums are then treated as taxable income. The deduction comes on the shareholder's 1040.

To be deductible on your 1040, you can either purchase a personal health insurance plan which gets reimbursed by the company or have the S corporation purchase it for you directly and pay the premiums.

Insurance laws in some states do not allow a corporation to buy group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole employee of the corporation, then the shareholder has to purchase health insurance in the individual’s own name.

The qualifying insurance payments by the s corp go on line 7 page 1 of the corporation's return. Also included in box 1 wages on w-2 and noted in box 14 something like "s-corp med ins" $$$ 

[June YW]

Thank you so much for the explanation!  I am still a little confused.  I am a one person s corp. and my payroll processor surepayroll did not put my medical insurance premium in box 1 of W2. In fact, they did not report the medical insurance premiums on W 2 at all. I have asked them to correct and issue me an amended W2.  But, can I issue myself an amended W2 using Turbotax bussiness?  Secondly, when I get the amended W2, Do I enter box 1 plus solo 401k contribution as income for the officer and medical insurance premium in the Deduction section of 1120S?  

Thank you for your help

[AbrahamT]

In answer to your first question, it is yes. As long as you have the proper amount  in your Box 1 to include your wages and 

medical insurance premiums. Be sure that when you get the corrected amended W2 from the payroll processor, it matches correctly to the figure on that amended W2  that you issued for yourself.

As far as your second issue, Per the w-2 instructions:

Employee Solo 401k contributions (elective deferrals) made as a pre-tax contribution are not included in box 1 of the w-2 but instead are reported in Box 12 (Code D). 

As far as the medical deduction premium which comes off as a deduction  from your Scorp tax return as a business expense, it will be included as Compensation of officers(line 7 of the 1120S) which is equal to the total amount of Box 1 of your W2.