By Kenneth H. Bridges, CPA, PFS March 2010
Prior to 2003, self-employed persons (including owners of S-corps) were limited in their ability to deduct health insurance (HI) premiums, whereas for other employees the employer company could pay the premiums and exclude such from the employee’s W-2. Rules in effect since 2003 have essentially leveled the playing field in this area by providing a deduction for 100% of a self-employed person’s HI premiums, provided certain criteria are met. A 2% or more owner of an S-corp may claim a deduction on their personal return in computing adjusted gross income for HI premiums provided:
- The shareholder is not eligible to participate in subsidized plan maintained by another employer or the spouse’s employer;
- The S-corp pays the HI premiums, or if the shareholder pays such directly he submits proof to the S-corp and it reimburses him; and
- The S-corp includes the amount of the HI premiums in the shareholder-employee’s W-2 as an amount subject to income tax, but not FICA (the S-corp gets an income tax deduction for this same amount).
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.